06/28/2024 – 11:27
The tax reform being discussed in the National Congress is being improved at several points in this phase of processing, among which the health of pets cannot be forgotten. The risk, at this point, is that a strong increase in the tax burden on pet health plans could lead to losses in animal welfare care and, to make matters worse, a drop in tax revenue in the sector.
The reform proposes replacing five taxes, ICMS, ISS, IPI, and PIS and Cofins, with three national taxes, the Contribution on Goods and Services (CBS), the Tax on Goods and Services (IBS) and the Selective Tax (IS). The CBS and IBS will be of the value-added type, generating credits widely used by companies that collect them. However, small and medium-sized companies will tend to remain in the Simples Nacional (SN), which is cumulative and has a total combined rate substantially lower than that announced for the CBS/IBS (26.5%).
Currently, companies that operate under the non-cumulative regime for PIS and Cofins are debited by applying the non-cumulative rate on their gross revenues and are credited at the same rate on the value of goods and services acquired subject to credit, regardless of whether the supplier operates in the non-cumulative regime or in the SN. With the reform, companies that purchase goods and services from companies in the SN will only be able to receive CBS/IBS credit according to the rate actually applied by companies in this regime, resulting from the option they can make.
Sectors whose revenues are predominantly generated by end consumers, such as the veterinary services sector for pets (SVet), will tend towards the SN, as the migration to the ordinary regime would make the tax burden on their revenues almost double the current one, considering the ISS, PIS and Cofins burdens in the SN.
Pet health plans (PSPet) basically operate on a non-cumulative basis (PIS/Cofins) and, through them, bring veterinary services and end customers closer together (or connect). They are the essential link for the proper functioning of the system, as they provide financial security for families to raise their pets, absorbing, in important circumstances, high expenses with care or avoiding non-attendance and animal abandonment. PSPet services provide more customers for the accredited network of veterinary clinics and hospitals, making them accessible to lower-income families, increasing investments and improvements in the sector.
The proposal under discussion in Congress indicates the standard rate for PSPet, which would cause an immense tax shock, especially knowing that the majority of its suppliers (SVet) will remain in the SN. As a consequence, the tax credits usable by PSPet will be much smaller than those currently calculated by PIS/COFINS. The jump in disbursement with taxes for PSPet, from 11.25% to up to 45.76% of net revenue from veterinary expenses, will be around 300%!!!
This increase in the burden on a sector whose demand is highly elastic will certainly result in a reduction in health insurance coverage for pets, with a consequent reduction in the demand for SVet and, as a result, a loss of tax revenue in both sectors, contrary to the expected neutrality of the reform. Other very sad consequences: an increase in the abandonment of pets, a higher incidence of zoonoses and social pressure on municipal administrations to deal with such consequences.
Medical literature has already demonstrated the importance of pets for human health and many countries exempt SVet from taxes. The rational way to avoid those harmful effects is, at a minimum, to maintain the current tax burden on the PSPet sector. Within the standard CBS/IBS rate reduction ranges (30% or 60%, according to PLP 68/24), only the 60% reduction, the same applied to health plans and sporting activities (respectively, arts. 117, XIII and 220 of the PLP), generates a tax burden closer to the current one, although still higher by 20%.
It is essential that the PSPet sector is treated equally in tax reform, with a 60% reduction in the CBS/IBS rate. This measure will not only maintain the sector’s competitiveness, but will also ensure the continuity of essential services for the health and well-being of pets and their families. Furthermore, it will help avoid negative impacts on tax revenue and public health, promoting a fairer and more sustainable economic environment for everyone.
Jorge Rachid, tax consultant and former secretary of the Federal Revenue of Brazil – RFB (2003-2008 and 2015-2018)
Ronaldo Medina, lawyer, economist and retired RFB Tax Auditor (1994 to 2023)
Virgílio Guimarães, economist, former federal constituent deputy, Rapporteur of PEC 41/2003 (Super Simples), consultant in finance and taxation
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