Proposal to regulate tax reform provides incentives for industrial production and the purchase of materials
The Manaus Free Zone and Free Trade Areas will preserve their competitiveness and tax exemption mechanisms, according to the PLP (Complementary Bill) that regulates tax reform. The text was delivered this Wednesday (April 24, 2024) by the Minister of Finance, Fernando Haddad, to the presidents of the Chamber, Arthur Lira (PP-AL), and the Senate, Rodrigo Pacheco (PSD-MG).
According to the proposal, which Power360 had early access, imports of raw materials will be exempt from IBS (Tax on Goods and Services) and CBS (Social Contribution on Goods and Services) made by companies located in the Zone. These taxes will also no longer be charged on the purchase of other industrialized products, as long as they are produced in Brazil.
The text provides for a reduction to zero in the rates of the 2 new taxes when an industry in the Zone supplies intermediate goods to another industry in the area. The company that buys from another firm in the Zone will have presumed IBS credit.
The proposal, however, excludes some products from the list of exemption beneficiaries. Here is the list of products not covered by the favored regime:
- Weapons and ammunition;
- Alcoholic beverages;
- Tobacco and derivatives;
- Passenger cars;
- Oil and petroleum derivatives;
- Perfumery and cosmetics that do not use raw materials from local fauna and flora;
- Jewelry, precious stones and metals;
- Works of art and antiques.
Free Trade Areas will have IBS and CBS suspended on imports of inputs by beneficiary industries.
Both the Manaus Free Trade Zone and the Free Trade Areas define that companies claiming the benefit need to be evaluated by the control bodies of the Zone or area in particular. It is also necessary to have your production or service provision projects approved by the region's board of directors.
UNDERSTAND TAX REFORM
In summary, the main change proposed by the consumption tax reform is the creation of 2 VATs (Value Added Tax) to unify a series of rates. The objective is to simplify the billing system in Brazil.
The change should come into force by 2033. It was instituted through a PEC (Proposed Amendment to the Constitution), approved by the National Congress in December 2023. Due to the nature of the constitutional amendment, tax regulation, with the details of the new system, needs to be done via bills (whether complementary or ordinary bills).
Brazil has 5 taxes on consumption that will be unified by VAT:
- IPI (Taxes over industrialized products);
- PIS (Social integration program);
- Cofins (Contribution to Social Security Financing);
- ICMS (Tax on Circulation of Goods and Services);
- ISS (Tax over services).
The dual VAT will consist of:
- CBS (Contribution on Goods and Services) – the merger of IPI, PIS and Cofins. Managed by the Union (federal government);
- IBS (Goods and Services Tax) – unifies ICMS and ISS. It will be managed shared between states and municipalities.
O Power360 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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