Tax reform has vote postponed in Senate CCJ due to lack of consensus

The CCJ (Committee on Constitution and Justice) of the Senate postponed this Wednesday (16) the vote on PEC (Proposed Amendment to the Constitution) 110, which promotes a broad reform in the tax system, by merging taxes.

The text presented by the rapporteur, Senator Roberto Rocha (PSDB-MA), did not gather consensus even with the support of the president of the House, Rodrigo Pacheco (PSD-MG). “The proposal, fundamental for the resumption of growth and job creation, needs to be approved, even in an election year”, said Pacheco earlier.

The intention of the president of the collegiate, Davi Alcolumbre (União Brasil-AP), is to vote on the matter next Wednesday (23).

The request for postponement was made mainly by MDB leaders, such as senator and pre-candidate for the Presidency of the Republic Simone Tebet (MS), who criticized items such as the forecast of taxation on books, and the former government leader in Casa Fernando Bezerra Coelho (PE), who attacked the uncertainty about cooperatives, tax burden for health and education companies and regional incentives.

For Coelho, the Northeast must have ensured in the text the application of tax incentives. “I cannot agree that we do not create conditions to generate legal security for investments in a region that is already very poor,” he said.

The text provides for the creation of the Regional Development Fund, funded by the IBS to allocate resources to infrastructure projects, environmental conservation, innovation and technology diffusion, as well as the promotion of productive activities with high potential for generating employment and income.

The project, however, proposes certain limitations for the fund. For example, 30% of the available amount must be destined for municipalities and 10%, investments in infrastructure in the states of origin of primary products destined for export.

Coelho also criticized the discussion of reform in an election year and said that the right thing would be to approve the government’s project that taxes dividends, stationed in the Senate.

“Tax reform is not to be voted on at the end of the term or at the end of the legislative period. The tax reform will unfortunately have to wait for the next term”, he said.

Understand the tax reform proposal

The text provides for the federal taxes PIS and Confins to be brought together in a new one, called CBS (Contribution on Goods and Services). In addition, the IBS (Goods and Services Tax) would be created, resulting from the junction of the state ICMS (Tax on the Circulation of Goods and Services) with the municipal ISS (Service Tax).

While CBS would be under the responsibility of the Federal Government, IBS would be a shared competence between states and municipalities. The model of two taxes resulting from mergers is called Dual VAT (Value Added Tax).

The transformation of taxes into CBS and IBS are justified as a way to reduce tax complexity, reducing costs and time for companies. According to the Center for Public Leadership, there are currently 27 ICMS and 5,568 ISS legislations.

The changes also depend on laws to be approved by Congress, but the forecast of the model in the constitutional text avoids any legal uncertainty in the discussions.

The IPI (Imposto sobre Produtos Industrializados) would be transformed into a Selective Tax, to be applied only to products that generate effects considered harmful to society (such as cigarettes), under the terms of a complementary law that will be discussed in the future.

The proposal’s rapporteur added to the text last month the provision of a differentiated regime for fuels and lubricants. It provides for the possibility of single-phase ICMS levy (that is, once in the chain), uniform rates throughout the national territory and charging per unit of measure (instead of the price charged at pumps).

Those changes were already passed through a bill in Congress this month. If they follow PEC 110, however, the changes will be fixed in the Constitution – making it more difficult to reverse.

The text provides for different regimes for the financial system, for operations with real estate and for others that a complementary law may institute – without accepting a proposal from the mixed tax reform commission that limited special regimes to a list of sectors and for a maximum period of 12 years.

“I believe that an exhaustive list of the benefited sectors is not a matter to be dealt with by the Constitution”, stated Rocha in his report.

Rocha also refuted claims that the reform is harmful to some specific areas of the Brazilian economy.

“It is not true that the service sector that would be affected represents 73% of GDP. I can even admit that the tertiary sector has 73% of GDP, it happens that within this we have Public Administration, services for companies, the financial sector, commerce. They already pay ICMS. If you extract that, 13% of GDP is left over and, of that 13%, 89% are in Simples”, he said.

Even with the postponement of the discussions, senators signaled during the session that it may not be possible to vote on the proposal easily in the next attempt, advocating more debates on the topic.

The postponement represents yet another obstacle to the tax reform, defended by Minister Paulo Guedes (Economy) since the electoral campaign and which has not made progress until now.

President Jair Bolsonaro (PL) himself sees it difficult to move forward with the issue in an election year and has already stated that, if the proposal is not approved yet in 2021, it would be for the next president elected from 2023.

“These reforms have to happen in the first year of each government. If you don’t approve this year, forget about next year,” Bolsonaro said at the end of last year.