08/08/2023 – 22:20
One of the main points of doubt in the course of the tax reform in the Senate, the standard rate of the future dual Value Added Tax (VAT) will be between 25.45% and 27%, after the introduction of exceptions by the Chamber of Deputies. However, the consumption tax will fall from the 34.4% currently levied. The calculation was presented this Tuesday (8) by the Ministry of Finance.
The Minister of Finance, Fernando Haddad, distributed the calculations to the rapporteur for the reform in the Senate, Eduardo Braga (MDB-AM). According to the parliamentarian, this was a demand from the senators to analyze the impact of the exceptions included by the Chamber of Deputies and “improve” the proposal.
The calculations were performed based on the premise of the reform not to increase the tax burden (weight of taxes on the economy). In order for the collection of taxes on consumption to continue at 12.45% of the Gross Domestic Product (GDP, sum of goods and services produced), the sum of the rates of the Contribution on Goods and Services (CBS) and the Tax on Goods and Services (IBS) should be within the range stipulated by the study.
The study was based on two scenarios: one “feasible” and the other “conservative”. The first simulation considers a “compliance gap” rate of 10%. This gap represents a measure of tax evasion, tax avoidance, default and judicialization by taxpayers. The second scenario assumes that this gap reaches 15%.
The future VAT will be composed of CBS, which will replace federal consumption taxes, and IBS, which will replace state and municipal taxes. According to the study, in the best scenario, the CBS will correspond to 8.53%, and the IBS to 16.92%, totaling the 25.45% VAT rate. In the most pessimistic simulation, 9.05% of CBS and 17.95% of IBS would be charged.
current taxation
The rate of 27%, presented in the worst case scenario, would be equivalent to that charged in Hungary, the Organization for Economic Cooperation and Development (OECD) country with the highest VAT. However, this percentage would be lower than the 34.4% currently charged in taxes on consumption.
Today, the consumer pays 9.25% of the Social Integration Program (PIS) and Contribution for the Financing of Social Security (Cofins), plus 18%, on average, of Tax on the Circulation of Goods and Services (ICMS). The sum is equivalent to 27.25% in the “inside” taxation concept, which takes into account taxes in the final price.
However, if “outside” taxation is considered, an internationally accepted parameter, which calculates the weight of taxes on the initial price (without taxation), the current effective rate rises to 34.4% – 24.2% of ICMS and 10.2% PIS/Cofins.
Exceptions
The exceptions included by the Chamber of Deputies will raise the standard VAT rate from 4.72 to 4.98 percentage points, according to the study. This occurs because, by giving special treatment to certain sectors of the economy, the other segments must pay higher rates for the government to collect the same.
Without the exceptions inserted by deputies, the standard VAT rate would correspond to 20.73% in the “feasible” scenario and 22.02% in the “conservative” scenario. In the first hypothesis, CBS would fall to 6.95%, and IBS to 13.78%. The second case predicts CBS of 7.38% and IBS of 14.64%.
These lower rates include few sectors with differentiated treatment, except for the maintenance of Simples Nacional and the special regime for the Manaus Free Trade Zone. This scenario also considers sectors that are taxed differently by internationally accepted technical criteria, such as fuels and lubricants, financial services, real estate operations, health care plans, lotteries, cooperative society operations and government procurement.
Impacts
The study also measured the weight of exceptions to the general rule. The 50% reduction in the rate for agriculture and livestock and the basic food basket will add 1.67 to 1.79 percentage points to the standard rate. The reduced rate of 50% for health services raises the standard VAT from 0.62 to 0.63 percentage points. In the case of private education, which also received the benefit of paying half the rate, the increase for the other sectors corresponds to 0.32 percentage points in both scenarios.
All sectors that had benefited from the 50% reduction in rates in the first tax reform report had their rates reduced to 40% during the vote in the plenary of the Chamber. This will incur an extra 0.73 to 0.77 percentage points to standard VAT.
The total exemption for items in the national basic basket, which will depend on a complementary law, will cause an increase of 0.67 to 0.70 percentage points in the final standard rate. The other exceptions included at the last minute, such as benefits for churches and football clubs, will have an impact of 0.35 to 0.38 points on the VAT of sectors without favored treatment.
#Standard #VAT #rate #calculates #Treasury