4 Main points about the Brazilian Tax Reform: Will the Tax Reform really be less bureaucratic and less onerous for taxpayers?
The Tax Reform was published in the Federal Official Gazette on December 21, 2023, through EC No. 132, and has already been in force since January 1, 2024.
From the outset, the Tax Reform was controversial, undergoing several amendments in both the Chamber of Deputies and the Federal Senate. Because of these changes, it has been divided among public opinion, both lay people and legal scholars.
With the Tax Reform approved and in force, it is possible to carry out a more careful analysis of the main points that could directly affect taxpayers, either positively or negatively.
In brief summary: the Tax Reform abolished 4 taxes (ISS, ICMS, PIS and COFINS), as well as changes to some existing taxes.
Without further ado, let's get to the main points about the Tax Reform that Brazilian taxpayers need to be aware of.
1- IBS is in force, but not so much
Although EC 139 states that the Tax Reform will come into force from the date of its publication, most of the provisions dealing with the IBS (Goods and Services Tax - "Imposto sobre Bens e Serviços") are subject to regulation by Complementary Law.
What does this mean? It means that although the IBS is now provided for in the Federal Constitution, it is not yet in force, i.e. it cannot be levied, due to the lack of a Complementary Law to institute it.
Who will have to regulate and institute the IBS? The National Congress. Without the issue of a Complementary Law by the National Congress, the IBS cannot be levied.
At the time of publication of this article, there is no forecast of approval of the Complementary Law that will institute the IBS.
Not only the IBS, but various provisions of the Tax Reform depend on a Complementary Law to come into force, such as the Selective Tax - a tax that will be levied on goods and services that are harmful to health and the environment.
With the number of provisions that require a Complementary Law for their regulation and institution, it is hard not to question the continued bureaucratization of tax collection in Brazil.
A Tax Reform is meant to simplify taxation, not continue or improve bureaucratization. Unfortunately, so far the Tax Reform has not (fully) lived up to its proposal.
2- The ITCMD will have progressive rates
The Tax Reform added a provision to the ITCMD (Causa Mortis and Donation Transfer Tax), which is that it will be levied progressively based on the share, legacy or donation.
Currently, the ITCMD is levied optionally by the states through a fixed rate or progressive rates. With these changes, as of January 1, 2024, the states will have to institute different progressive rates, depending on the amount to be taxed.
It may seem advantageous at first for some, but there is concern about the increase in the decline in the regularization of the inventory, and this could give rise to various problems which could (even more) overwhelm the judiciary.
3- IPVA will be levied on jets, airplanes, speedboats and boats, as well as the possibility of having a progressive rate
One of the positive points of the Tax Reform was the levying of IPVA on water and land vehicles. Previously, jets, speedboats, planes and ships were not taxed at all, as there was no legal provision for this.
In addition, I see it as one of the possibilities, together with the ITCMD, to compensate for the loss of state ICMS revenue in the medium and long term.
However, unlike the ITCMD, the states can choose to institute progressive rates or not.
4- The IPTU tax base can be updated by decree
Before the Tax Reform, IPTU could only be changed by law. In other words, IPTU could only be changed by means of an Organic Law with the approval of the City Council.
After the Tax Reform, the calculation basis can be changed by the mayors (Executive Branch), by means of a simple decree, without any approval from the City Council, under the terms of a specific law approved in each municipality. As a result, the IPTU can be increased or reduced by a simple act of the Municipal Executive.
In this case, as with the IPVA, this was one of the ways the legislature found to compensate for the loss of ISS revenue for municipalities.
With so many changes and nuances, tax planning is essential, even for those who intend to live abroad and have assets in Brazil.
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