The Senate plenary approved in a second round this Wednesday (8) the basic text of the Proposed Amendment to the Tax Reform Constitution. The score was 53 to 24, a victory for the government. One of the PEC’s central changes is the replacement of the current five consumption taxes with one federal and one state charge.
The approved text is based on the report on the PEC prepared by senator Eduardo Braga (MDB-AM). Braga changed the version of the PEC that came from the Chamber of Deputies, increasing the fund maintained by the Union to reduce regional and social inequalities to R$60 billion, reducing the powers of the management committee for the future state and municipal tax, among other changes.
The changes made mean that the text has to return to the Chamber of Deputies.
The vote was marked by intense collaboration between politicians, technicians and lobbyists who were present in the plenary, discussed points of the proposal and even answered senators’ questions throughout the day.
Present throughout the afternoon at the House were the Extraordinary Secretary for Tax Reform of the Ministry of Finance and creator of the proposal, Bernard Appy, the rapporteur of the PEC in the Chamber, deputy Aguinaldo Ribeiro (PP-AL), the governors of Rio de Janeiro, Santa Catarina and Pernambuco, Claudio Castro (Republicans), Jorginho Mello (PL) and Raquel Lyra (PSDB).
In total, 24 amendments were presented this Wednesday to the text by rapporteur Eduardo Braga, which was approved on Tuesday by the CCJ. Voting for the highlights continues tonight.
Changes in relation to the Chamber
Among the changes made by the senators are the provision of a ceiling for the Value Added Tax rate, the VAT, which will be created to replace the five taxes that currently exist on consumption and the increase to R$60 billion in the fund that will be maintained by the Union to reduce regional inequalities after the approval of the reform.
Furthermore, the senators decided to implement a mechanism to reward entities that increase revenue during the transition period between the current taxation system and the new one. The objective is to avoid the “free rider effect”, which would cause states and municipalities to maintain the level of revenue without monitoring the implementation of the new tax system.
According to the PEC proposal approved by the Chamber of Deputies, VAT would be divided into two, one to replace federal taxes (the CBS) and the other to replace the state and municipal taxes that exist today (the IBS). This transition, however, will be slow, so that the new taxes will only be completely implemented from 2033 onwards. Furthermore, the rules for implementing the IBS will be completely implemented in states and municipalities in 50 years.
The reform is one of the main pillars of the Lula government, led by Finance Minister Fernando Haddad, and promises to modernize the tax system, implementing a taxation model currently used in several developed countries.
Throughout the proceedings in the Chamber and the Senate, however, several exceptions were added for some specific sectors to have reduced rates or even exemptions, in addition to special regimes. As a result, Haddad estimated that the value of VAT should be around 27.5%, which would be the highest in the world. Even so, experts, politicians and members of the government have highlighted that changing the taxation system will bring significant benefits to the Brazilian economy, since even with these exceptions the new model should be simpler and more efficient than the current one.
Editing: Thalita Pires