Author:
Victor Serrão, CPA
Partner, Pitmen Auditores Independentes
W: www.pitmen.com.br
E: [email protected]
Edited by:
Grant Gilmour, CPA (Canada, BC) CPA (USA, Arizona)
Integra Tax World Newsletter Editor
E: [email protected]
The Brazilian tax reform, a crucial initiative to simplify and modernize the country’s tax system, is currently being processed by the National Congress. At the moment, the Chamber of Deputies is still negotiating internally the deadline to conclude the vote on the second text that complements the tax reform. Initially, the new legislation is expected to come into force in stages, between 2025 and 2033.
The reform proposes the transition from the current model, which includes taxes such as PIS, COFINS (Contribution for the Financing of Social Security), ICMS (Tax on the Circulation of Goods and Services) and IPI (Tax on Industrialized Goods), to a taxation model through the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS). This transition will begin in 2026, with the collection of 0.9% CBS and 0.1% IBS. From 2033, the tax types currently in force will be extinguished, and the new taxation will come into full force.
The CBS, or Contribution on Goods and Services, is a proposal that aims to unify the PIS (Social Integration Program) and the COFINS (Contribution for the Financing of Social Security). The CBS will be the responsibility of the Union. The expected final in force rate for the CBS is 8.8%.
The IBS, or Tax on Goods and Services, will replace the ICMS (Tax on the Circulation of Goods and Services) and the ISS (Tax on Services), which are taxes under the responsibility of the states and municipalities, respectively. The IBS will be a shared responsibility between the States, the Federal District and Municipalities.
The implementation of the IBS and CBS will be preceded by a testing phase that will initially begin in 2026. Gradual unification will begin in 2027, in which the new tax types will have their rates progressively increased until 2032, when the old tax types will be definitively phased out. No significant changes are expected in the tax burden of companies, when considering the sum of all tax types. The transition regime, therefore, will be complex and gradual, primarily aimed at mitigating abrupt impacts on the Brazilian economy – which means that, in the first few years, we will actually see a significant increase in the complexity and number of hours worked to comply with tax rules in Brazil.
Specifically for individuals, there are currently two discussions that are concurrent, and in a certain way complementary, to tax reform. The first concerns the increase in the exemption bracket for Personal Income Tax to R$5,000, which would ensure much fairer taxation of wage income. And the second is the creation of a specific tax type for large fortunes, with no set rate yet. Both measures, however, are still being speculated.
Changes in Taxation on Donations and Inheritances
The tax reform also brings changes to the taxation on donations and inheritances. However, these changes have generated controversy and debate in the press and in public opinion. The current idea is to take advantage of the reform to increase taxation on inheritance and large fortunes, at rates that can reach, in certain tax brackets, more than 30%.
The general fear is that, since Brazilian taxes on inheritance are due at the time of inheritance, the enjoyment of inheritance itself will be made unfeasible in certain cases, specifically for the middle class.
This entire discussion, however, has one aspect that has not yet been made clear regarding the tax reform, which is the lack of provision for rationalizing tax obligations, but the scenario is still uncertain in this regard. Currently, companies incorporated in Brazil that are subject to the Real Profit tax regime must submit eight different ancillary obligations, five of which must be submitted monthly. In this sense, the Brazilian tax reform might represent a missed opportunity in terms of reducing the complexity of the Brazilian tax scenario.
We are still waiting for a structural reform that represents a real gain in the number of hours spent preparing tax obligations and calculations throughout the year for medium and large companies. Furthermore, the reform should represent a real gain in competitiveness for the Brazilian economy, with the optimization of the overall tax burden on the Brazilian economy, which so far does not appear to be the case.
Although the reform brings significant changes, the search for a more efficient and fair tax system continues.
To learn more about the new Brazilian tax scenario, continue following Integra International’s newsletter, as well as our website and social media.
© 2024 Integra International. All rights reserved. This Article is not intended to provide legal or other advice, and you should not take, or refrain from taking, action based on its content. Prior results do not guarantee a similar outcome.
About the Author:
Victor Serrão, CPA
Partner, Pitmen Auditores Independentes
Victor Serrão is a Tax partner and responsible for the global expansion of Pitmen, also serving as the CMO (chief Marketing officer) of the group. He has about 20 years of experience in tax and advisory, having worked at some of the largest auditing firms in the market. He is currently pursuing a Master’s in Marketing & Business Strategy at ESPM, with prior education in Law, Accounting, and Marketing. He has experience across various segments, including oil and gas, energy, mining, real estate, telecommunications, sanitation, media, and entertainment, among others, working on projects involving Tax Compliance, Due Diligence, IPOs, Tax Planning, and Business Modelling both in Brazil and internationally. He is also responsible for our area of tax services outsourcing.
Integra International Bio:
https://www.integra-international.net/find-an-integra-firm/find-firm-profile/name/victor-serrao/
