The need for tax reform has been debated for at least three decades in Brazil, but the issue finally seems to be coming to an end. On July 7, 2023, the Chamber of Deputies approved Proposed Amendment to the Constitution (PEC) 45/2019, which addresses the subject. It now moves on to the Senate.
In short, the PEC makes it possible to reduce and unify taxes on consumption, as well as making the tax system more transparent. At least five taxes will be eliminated, including the Social Integration Program (PIS), Social Security Financing Contribution (Cofins), and the Tax on Industrialized Products (IPI).
These taxes, which are levied at federal level, will be replaced by the Contribution on Goods and Services (CBS), which is the responsibility of the Federal Government. The Tax on Goods and Services (IBS) will replace the current state ICMS and the municipal ISS and will be the responsibility of states and municipalities.
In addition, tax credits will be accumulated throughout the production chain to avoid the cascade effect, which is the incidence of taxes on taxes. In the initial period, federal Value Added Tax (VAT) will have a rate of 0.9%, while state and municipal VAT will have a rate of 0.1%.
The current collection of taxes at the origin of production is being reformulated to be levied at the destination of operations, a model already adopted by several countries. This change has the potential to reduce the price of manufactured products, since the tax will only be deducted at the end of the production process.
Why is change important?
Every country has its own tax system, and Brazil stands out globally for having one of the most complex systems. The large number of taxes, the different methods of calculation, the frequent changes to the rules and the profusion of exceptions are all features that are well known to Brazilian entrepreneurs.
Through these changes, the government aims to eliminate variations in the rates charged in different sectors, thus creating a business scenario that is more conducive and effective for Brazil’s economy. This simplifies the process of taxing goods and services for companies and results in greater transparency.
Here at Pryor Global, we are ready for any changes. We serve international companies from different segments, following global accounting standards and tax and labor regulations. We offer effective accounting management and innovative solutions, using technology to process and evaluate information efficiently.
Talk to our BPS team and find out how we can help your company.