Proposal to regulate tax reform establishes that States will define what would be considered significant assets; Senate will set the rate
The tax reform regulation project prepared by the 2nd working group on the subject in the Chamber of Deputies determines that large estates will be taxed at the maximum rate of ITCMD (Tax on Transfers of Property by Death and Donations). The tax is levied on transfers of assets or rights in a non-onerous manner, such as inheritances.
There is still no definition of the maximum rate or what would be considered a large estate. According to the supplementary bill, the states will be responsible for defining the standard for wealth. The Senate will establish the rate.
The report of the PLP (complementary bill) 108 of 2024 was released by the deputies of the working group this Monday (8.Jul.2024). Here is the full of the document (PDF – 727 kB).
According to the proposal, the inheritance tax percentage will gradually increase with the increase in the share (part of the inheritance), the legacy (a specific asset or set of assets) or the donation.
Another relevant change is that private pension plans for succession purposes, that is, for transferring from one individual to another, will also be included in the ITCMD list. In technical terms, the incidence will occur in the PGBL (Free Benefit Generating Plan) and VGBL (Free Benefit Generating Life Plan) modalities.
When the government of Luiz Inácio Lula da Silva (PT) drafted the bill, the categories were included in the tax system. However, they were removed at the last minute. In June, the extraordinary secretary of Tax Reform, Bernard Appy, said that the removal was due to a “political evaluation”.
Shortly before the report was released, federal deputy Pedro Campos (PSB-PE) had already defended and publicized the working group’s decision.
“Large assets must be charged at the maximum ITCMD rate. This definition of large assets will be up to the States, but if a large asset is defined, it will be charged at the maximum ITCMD rate, which will be defined by the Federal Senate.”he declared in the Chamber in an interview with journalists.
The federal deputy Ivan Valente (Psol-SP) also defended the change. In addition, he stated that his party will present an amendment to the complementary bill to further expand the taxation of assets.
“We are going to introduce a plenary amendment, I want to discuss this in the plenary. […] Large fortunes are also assets. We don’t need to wait for income reform later, etc. […] The time is now, to debate at least with society, I don’t know if we will be able to collect the signatures or if we have the strength to pass, but our party will present it”he told reporters in the Chamber of Deputies.
Find out who the members of the 2nd working group for regulating tax reform are:
THE REGULATION
On April 24, Haddad personally delivered the main text of the tax regulation to the presidents of the Chamber of Deputies, Arthur Lira (PP-AL), and the Senate, Rodrigo Pacheco (PSD-MG). The 2nd text was released in June.
In total, there will be 3 texts: 2 complementary bill projects (these are already with Congress) and 1 ordinary bill.
The complementary ones will deal with:
- the specifications common to the IBS (Tax on Goods and Services) and the CBS (Contribution on Goods and Services) – Contains definitions of all specific and differentiated regimes of federal, state and municipal taxes. It also discusses selective taxes;
- IBS specifications only – will define the format of the tax management committee. It addresses the transition from the current ICMS (Tax on the Circulation of Goods and Services) to the new rate.
The third text – in the form of an ordinary law – should detail how the transfer of resources to the Regional Development Fund will be made as compensation for tax benefits. This will also be done later.
Here are the differences between the texts:
- bill – legislative proposal that can create, amend or repeal laws;
- ordinary bill – deals with general matters and requires a simple majority for approval;
- complementary bill – regulates specific topics provided for in the Constitution and requires an absolute majority for approval.
UNDERSTAND TAX REFORM
In short, the main change proposed by the consumption tax reform is the creation of VAT (Value Added Tax) to unify a series of tax rates. The objective is to simplify the collection system in Brazil.
The change is expected to come into effect by 2033. It was instituted through a PEC (Proposed Amendment to the Constitution), approved by the National Congress in December 2023.
Brazil has 5 taxes on consumption that will be unified by VAT:
- IPI (Taxes over industrialized products);
- PIS (Social integration program);
- Cofins (Contribution to the Financing of Social Security);
- ICMS (Tax on the Circulation of Goods and Services);
- ISS (Tax over services).
Dual VAT will consist of:
- CBS (Contribution on Goods and Services) – the merger of IPI, PIS and Cofins. It will be managed by the Union (federal government);
- IBS (Tax on Goods and Services) – unifies ICMS and ISS. It will have shared management between states and municipalities.
O Poder360 prepared a report that explains in detail the tax reform and the changes it will bring to citizens’ daily lives. Read here.
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