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Effective reform will continue to depend on complementary laws, highlights Tiago Severini.
The Constitutional Amendment Proposal (PEC 45/2019) in relation to tax reform, which was approved in the Federal Senate and returned to the Chamber of Deputies due to the changes made, deserves praise for maintaining the focus on simplifying the tax system at a macro level .
However, as mentioned in a previous article for the epbr agency, the effective success of the tax reform, despite its remarkable progress to date, is not yet guaranteed. There are challenges and uncertainties to be faced so that the promised benefits can be fully realized.
The final text of PEC 45 will have to go through a series of adjustments and complementations through Complementary Laws (LC) to minimize the present inconsistencies. Otherwise, the new tax regime could become as complex as the current one, considerably increasing the challenges and costs of the transition.
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Preservation of competence to define special regimes no transition rule for benefits such as repeat
In the comments present, the approved text is highlighted, which preserves the delegation to the LC of the competence to define the rules of special regimes for the new value-added taxes (IVA) established. However, there is no express provision for a transitional rule designed to ensure the preservation, until the final deadline, of benefits with a fixed term and onerous condition, as happens with the repeat.
In this context, we reiterate the concern already mentioned in a previous article about the consequences that the approval of the reform PEC would have on special regimes currently in force.
These regimes, such as repeat and the reidi, play a crucial role in the energy sector, focusing on attracting capital investment and benefiting from programs such as drawback, bonded warehousing or DAC (certified bonded warehouse).
Special customs regimes play a crucial role in promoting exports and simplifying customs routines in Brazil, in addition to contributing to reducing the tax burden applied to international operations. These regimes are part of projects of an international nature and are fundamental to boosting the foreign trade.
Due to their strategic importance, these regimes are present in different countries, with variations, and are also provided for in international agreements to which Brazil is a signatory. This demonstrates the relevance and scope of these regimes in the global trade context.
O repeat and the reidi These are programs that aim to reduce the cost of investing in capex for new projects. Their main objective is to reduce the high capital cost of oil and gas exploration and production projects, in the case of repeat, and infrastructure, with an emphasis on energy projects, in the case of reidi.
Both benefits seek to attract investments, aiming to generate jobs and income in the country. Furthermore, the capex relief can offset the amounts related to the relief received, through Taxation direct and indirect, royalties and special participations. These programs aim to make enterprises economically viable, generating significant benefits for the country's economy.
Impact of revenue waivers and delegation to the Complementary Law
It is essential to emphasize that revenue forgone in capital investments (capex) are compensated in terms of revenue. If these waivers were eliminated, many projects would be at risk of not being carried out, reducing total revenue instead of increasing it, due to the high level of risk involved.
The transfer of the competence to regulate the regimes applicable to new taxes to the Complementary Law, without establishing clear guidelines, represents a significant increase in the risk associated with any new projects that involve the adoption of special regimes. This is due to uncertainty about the timing of approval of complementary laws and the impossibility of anticipating the content of proposals, which can directly impact project pricing.
The increase in risk results in increased costs, especially with regard to financing, which leads to a decrease in the appeal of new projects.
The PEC 45 project, currently being processed in the Senate, raises concerns by suggesting that current suspensive regimes may be dispensable in a reformed tax system, due to the impact on added value and the supposed neutrality throughout the production chain and in the comparison between imported and locally supplied goods, as noted in the reports attached to the proposal.
After the reform, the tax system will maintain a value-added tax at federal level and another at state/municipal level, without the possibility of offsetting credits between them, due to federal limitations.VATs.
This means that predominantly exporting companies may face the accumulation of credits, similar to what currently happens with the ICMS🇧🇷 This occurs due to IVA collected throughout the chain, which is not deducted from the final export operation, resulting in accumulated credits that may not be compensated due to the lack of operations subject to the incidence of the IVA.
It is important to highlight that the current regulation of ICMS It was the result of a political agreement between the States and the Union, which began in the context of the Federal Constitution and was reinforced with the Kandir Law. This agreement provided for reimbursement to States for export relief, with resources partially allocated to taxpayers who accumulated credits, to compensate them for the accumulated amount.
The Problem of Compensation of Credits ICMS
In a practical context, it is known that States are rarely able to offset accumulated credits from ICMS, and when they do, the compensation is only partial. This occurs because the States were never rewarded by the Union based on the aforementioned agreement, which results in one of the main causes of inefficiency in the current tax system in relation to the ICMS.
It seems that the system introduced by the new reform presents the same problem, without any alternative solution.VAT yet.
It is evident that Taxation of goods, rights and services has a significant impact on the clearing of credits, which is a concern for several sectors, especially for companies that depend on exports as their main source of revenue.
Although the broader scope of the tax may mitigate the accumulation of credits to some extent, we believe it is not enough to guarantee full compensation, especially for companies that rely heavily on exports.
The text of the PEC approved by the Senate does not offer a consistent mechanism to deal with this problem, which could lead to a vicious cycle of credit accumulation and have a negative impact.VATthese specific sectors.
The expectationVAT is that the inefficiency of the current tax system will be maintained, unless there is a binding solution for the federative entities involved, provided for in a Complementary Law.
Given this, we believe that the text of the tax reform approved by the Senate still needs several adaptations, which should be incorporated into the text of the PEC itself, to avoid excessive delegation.VAT of skills to LC, without clear guidelines. This could generate uncertainty during the processing of complementary laws, increasing the risk for new ventures in the short term, in addition to the possibility of new taxes with the same problems as the current system.
If the proposal is approved with a text similar to that of the Senate, it will be crucial to recognize the symbolic and political progress achieved. However, it is essential to highlight that true reform needs to be constructed considering the technical and decisive details present in the context of complementary laws.
It is worth noting that the content only expresses the opinion of the author and does not necessarily represent the position of the institution to which it is linked.
Tiago Severini: Partner Specializing in Tax and Customs Law
Tiago Severini works as a partner in the Taxation and customs issues from the law firm Vieira Rezende. Its focus is on the areas of tax law, customs and related issues, offering a specialized and high-quality service to clients.
Source: EPBR Agency
