BRAZIL

On February 23, the Senate Constitution, Citizenship and Justice Committee discussed the bill to amend the Constitution, which is part of the tax reform promoted by the Executive Branch. It proposes the creation of the Goods and Services Tax (IBS in Portuguese) and the creation of the Selective Tax (IS in Portuguese) that would tax products considered “harmful”, such as alcoholic or sugared beverages. The bill was presented in a substitute text, which will have a period of one week for the legislators to analyze it. After this period, during the course of the next few weeks, the bill is expected to be voted on by the Committee. 

It should be recalled that the amendment seeks to unify nine subnational taxes and install the Goods and Services Tax (IBS), which is one of the two taxes included in the institution of a dual value added tax (VAT) model. The IBS will be composed of two different taxes: one that will feed the national coffers and another one destined to finance the different subnational jurisdictions (states and municipalities). 

It also seeks to implement the Selective Tax (IS), which would replace the Industrialized Products Tax (IPI in Portuguese) and would tax the production, importation and sale of goods and services that are harmful to health or the environment, such as alcoholic or sugared beverages. However, the new tax would not tax exports of these goods and services.

The new substitute text, presented by the senator rapporteur of the matter, Roberto Rocha (PSDB – ruling party), includes modifications such as the doubling of the transition time of the Goods and Services Tax (IBS in Portuguese), for states and municipalities, previously foreseen in 20 years and now fixed in 40. In addition, another change consists in the allocation of 3% of the portion of the IBS revenues that distributes the destination to the compensation mechanism. However, the gradual elimination of this mechanism, as of the end of the transition, must be provided for by a complementary law.

On the other hand, it should be noted that the Minister of Economy, Paulo Guedes, expressed the government’s interest in presenting a proposal to reduce the Industrialized Products Tax (IPI). In the framework of the CEO Conference, an event held by the investment bank BTG Pactual, the minister said: “We are preparing a mechanism, with the support of the president of the Chamber of Deputies, Arthur Lira, of the chief minister of the Civil House, Ciro Nogueira, and, mainly, of the President of the Republic, to reduce the IPI”.