Brazilian economy: tax reform and its impacts

Aug 19, 2020

To understand the future of the Brazilian Economy you have to understand the changes that the Tax reform will bring. Tax reform is a set of changes in legislation based on the Federal Constitution. It is through PEC’s (Proposed Amendment to the Constitution) that the tax reform happens, since the entire basis of the Brazilian tax law is in the constitution of the country, guaranteeing the fundamental rights of the taxpayer.

If we analyze it in more depth, we will see that several taxes affect very similar calculation bases, but regulated by different federative entities. Also, the difference in taxation between states and municipalities causes a lot of confusion for taxpayers and encourages a fiscal war.

The Brazilian tax system is known for its complexity. The tax reform aims to change that, if you have a business in brazil, check out what may the tax reform impact in your company.

Main proposals for the tax reform

PEC 45/2019

This is the proposal aims to simplify the taxes system by replacing the next five Tax on transactions related to the movement of goods and services (ICMS), Tax on transactions related to the movement of goods and services (ICMS) – state; Tax on services of any nature (ISS), Tax on industrialized products (IPI), Contribution to the Federal Social Integration Program (PIS), and Contribution to the financing of social security (Cofins) for only one tribute the state-level value-added tax, called the Goods and Services Transactions Tax (IBS). Besides, PEC 45/2019 proposes a cash transfer mechanism for tax refunds for necessitous families.

PEC 110/2019

While PEC 110/2019 fixes the replacement of nine existing taxes today, PEC 45/2019 provides for the replacement of just five. Extinguish nine taxes: Tax on industrialized products (IPI) – federal; Contribution to the Federal Social Integration Program (PIS); Contribution to the financing of social security (Cofins) – federal; Tax on transactions related to the movement of goods and services (ICMS) – state; Tax on services of any nature (ISS) – municipal; Tax on Financial Operations (IOF) – federal; Server Heritage Training Program (Pasep) – federal; Education Salary (social contribution for program funding) – federal; Cide-Fuels (social contribution for transport infrastructure investment) – federal. Replacing then for: A state-level value-added tax, called the Goods and Services Transactions Tax (IBS) and the IS (Selective Tax), which would be a Federal tax levied on operations of specific goods and services.

It also includes the possibility of tax incentives to some productive sectors and specific economic activities, such as basic food, basic sanitation and early childhood education.

Main impacts on your company

In practice, simplifying the collection of the IBS will not save for the taxpayer. The new tax will maintain the current tax burden unless governments decide to reduce rates.

Thus, instead of reducing the burden of taxes, PEC 45/2019 only makes the process less bureaucratic. Besides, it will be possible to save on the costs of bureaucracy on the part of companies, in addition to reducing ancillary obligations, which consume many hours and resources to achieve tax compliance.

It all depends on which proposals would go into effect to see what is going to change for the business in brazil. See below what are the main points that deserve your attention:

Mandatory taxes: With proposals of the replacement of the taxes, it would be necessary to follow the new legislation to see which ones your organization would need to collect.

Accessory obligations: This profound change in taxes also interferes with accessory obligations that must be followed.

Financial impact: Tax expenses also expected to change with new taxable events, calculation bases and rates.

Incentives and benefits: Some of the tax reform proposals seek to eliminate incentives and benefits to make the tax system fairer. Therefore, it is also good to monitor these changes.

Internal organization: A reorganization of the internal processes of the tax department would be essential to adapt to the changes in tax reform.

Tax system: Another point is to find out if the tax system used by your company can keep up with changes in tax reform. While some companies would have to look for a new solution, organizations that use a system for updates can benefit from technology to track the impacts of tax reform.

If you are looking for a partner that understands the Brazilian economy, choose GM Venture, it’s knowledge can help your business in brazil to succeed.

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