The Special Committee for Tax Reform concluded at 5h50 a.m. on Thursday (11/20), the voting on the report presented by the rapporteur, Deputy Sandro Mabel (PR-GO). The objectives of the proposal are to streamline Brazilian Tax System, which is one of the most complexes in the world, and to put an end to fiscal war among states. By rationalizing tax collection, reform should contribute, in a medium and long term, to the reduction of tax load, which is currently around 37% of IGP.

Opposition parties (DEM, PSDB, PSOL and PPS) voted against the base-text of the reform. The proposal will be sent to the House Floor, where it should be voted in two stages, and then forwarded to Senate.

Federal IVA created
One of the main points of the proposal is the creation of a Federal Tax on Added Value (IVA-F), from the fusion of PIS/Pasep, Cofins and contribution
for the education salary. If the collected amount by the new tax surpasses the one of the former ones, the government will be obliged to decrease its rates.

Fiscal war
In order to put an end to fiscal war, the text provides for penalties for the states which insist in those politics, which are the interruption on resource transfers from the Union. Nevertheless, in order to cancel any fiscal incentive defined as fiscal war, the approval of the majority of members of the Committee for Finance Administration (Confaz) will be necessary, with the votes of representatives of all regions of Brazil. The quorum is currently 4/5 of all votes. The initial report maintained the current quorum, which was of simple majority.

Social Security Income
The text clarifies that the Social Security won’t lose income with the decrease in taxes related to payroll. According to the report, if, in the first year after the approval of the tax reform, a project on the subject is not approved, there will be a reduction in one percentage point by year of social security contribution by the employers, during six years (from 20% to 14%). With that reduction, INSS will lose R$ 4 billion per year.

Exemption of basic food basket approved
The Special Committee for Tax Reform approved the amendment proposed by Deputy Ana Arraes (PSB-PE) which guarantees the exemption of ICMS for products of the basic food basket. The rapporteur, Deputy Sandro Mabel (PR-GO), argued that that measure will result in serious losses to the food producing states, but the committee understood that the social benefit will be more important than the tax losses.

Concessions to the states
In the last minute, Mabel made concessions to the states´ governments. He increased the resources of National Regional Development Fund (FNDR) , from R$2.8 billion to R$3.5 billion, to supply Northeastern states, and promised to seek for more cash in order to reach a goal of R$8 billion until the end of the voting on the reform. This fund will help states to finance investment and infrastructure projects, to compensate the prohibition of new benefits and fiscal incentives of ICMS, as attraction factors for investments.

One of the main worries of the states was the decrease in the collection of use and consumption goods of companies, whose acquisition will generate the right to tax credits of ICMS. Solely the State of Sao Paulo forecasts losses of R$ 7 billion per year, in current values, with this decrease in collection. The rapporteur proposed that the use of these credits start only in the ninth subsequent year of the approval and enforcement of the reform.

There will also be a 12-year transition for the adjustment of fiscal incentives awarded by the states on the collection of ICMS provided that they are part of states budgets. Thus, the states should obtain more time to establish other incentives that are not linked to the social and productive activities listed by the reform (in the industrial, crop and livestock, cultural, social, sports and habitation programs sectors)

Answering to a claim by Espirito Santo, Sandro Mabel included port activities among the ones that will receive extended incentives, according to the same 12-year transcription rule. This activity has received incentives since the 70es in the states, and the rapporteur agreed that it would be unfair to exclude them from the transition.

Mabel maintained the device that interests Rio de Janeiro, which is an oil-producing state: the taxation of 2% or 3% of oil and electrical power, which will stay in their origin’s state. They are currently only taxed in the destination states.

Free Trade Zone of Manaus – the fiscal incentives of the region were extended for 20 years (until 2033).

New contributions – a committee excluded from the final text of the proposal, the competency of the complementary Law to establish new contributions. Thus, the approval of a new CPMF, for example, will depend on the Constitution Change, which is much more difficult to be approved.

IVA-F calculation – The committee maintained the collection of the Federal IVA, in which the tax integrates its own calculation basis, which is known as the “inside tax”. The amendment to DEM, which intended to eliminate collection, was rejected. The Deputy Sandro Mabel argued that the elimination of that collection would not represent a decrease in the paid value, but only a change its calculation method.

Recycling – the committee approved the exemption of ICMS for waste and scrap used as raw materials for recycling. The measure, which was provided for in the amendment of Deputy Rodrigo Rollemberg (PSB-DF), stimulates the residue sector.

Software – The committee decided to maintain the collection of ICMS on software trade. It is part of the approved reform text and does not enforce custom made softwares, which are taxed as services by ISS, the main municipal tax.

Minerals – the deputies maintained taxation on gross sales on the extraction of the main minerals produced in Brazil, and a tax increase from 2% to 3%. PSDB, though, which was the author of the motion to amend, wanted to eliminate the rejected measure, argued that there will be a cost increase in on the productive chain using minerals.

Other important points
- A more adequate definition of services taxed by IVA-F;
- The incorporation of Social Contribution on Profit (CSLL) to the Income Tax for Corporations (IRPJ);
- Unification of 27 laws about the Tax on Circulation of Wares and Services (ICMS) in an only legislation;
- Decrease in taxation of food, hygiene, cleaning and of popular consumption products with the exceeding collection;
- Automatic transference from third parties, of credits from ICMS, IVA-F and IPI, for taxpayers using electronic invoices;
- Preview of a Taxpayers Code

Report - Marcello Larcher
Editing - Wilson Silveira / Rejane Xavier