by Christian Fernandes Rosa
On November 7, the Senate Constitution and Justice Committee (CCJ) approved the base text of the tax reform, a significant step towards restructuring taxation in Brazil. However, the text faces criticism, especially from the private sector, which is concerned about possible increases in the tax burden. The government sector also faces challenges in adapting to a new reality of collective management of resources, affecting Municipalities and States.
On November 7, the Senate Constitution and Justice Committee (CCJ) approved the base text of the tax reform proposal, a significant step towards the long-awaited restructuring of the legal framework for taxation in Brazil.
The text did not escape criticism from various sectors. Among private sector representatives, the concern was mainly the possibility of an increased tax burden for some economic activities — this in a country that always ranks among the most prominent when it comes to an insatiable appetite for tax collection.
In the government sector, it is clear that Municipalities and States will still have to make great efforts to adapt to an entirely new reality in which the federative pact will be expressed through a model of collective management of these resources, which are so necessary for the performance of public functions, policies and services.
Regardless, the progress the bill brings on consumption taxes is remarkable. As a study published by IPEA in 2022 on the tax systems of member countries of the Organisation for Economic Co-operation and Development (OECD) rightly points out, this type of tax is the largest source of revenue in most developed and developing countries, such as Brazil. The same IPEA survey highlighted the OECD’s recommendations on the importance of eliminating multiple taxes on economic activities associated with consumption.
Consolidating and simplifying consumption taxes, already adopted in the most developed OECD member countries, is one of the major advances of the bill approved by the Senate Committee and is aligned with an effort to reduce complexity and red tape in business operations. While the Contribution on Goods and Services (CBS) will bring together federal taxes such as PIS, Cofins and IPI, the new Tax on Goods and Services (IBS) will combine the former state and municipal consumption taxes (ICMS and ISS, respectively).
The tax reform proposal is far from representing definitive relief for Brazilian economic activity. But in a country where the federative system and the historical complexity of tax regimes have always been considered an insurmountable obstacle, the rationalization brought by the text approved by the CCJ, especially in the area of consumption taxes, is news to be celebrated.
Among other factors, the measure, if approved, will be an important pillar of a legal and institutional platform needed to resume national economic development, based on investment and the dynamism of the domestic market.
Article originally published on the Migalhas portal (in Portuguese), on 11.10.2023.
