Brazilian tax changes in 2015: A never-ending story

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Brazilian tax changes in 2015: A never-ending story

Around the world, 2016 began with the same challenges that were not overcome during 2015.

In Brazil, there is no difference, especially regarding the worsening crisis due to the imbalance of public accounts. The Brazilian Government cannot reduce public spending due to the negative impact it could have in the electorate. Therefore, the worst and most inefficient remedy, that is, creating or increasing taxes, becomes the key resource for the government. 

In this sense, President Dilma Rousseff sent to Congress in the beginning of this legislative year an official message presenting some priority fiscal issues:

1) Implementation of the CPMF:

Rousseff has publicly defended the return of the provisory contribution on financial transactions (CPMF) as a necessary measure to overcome the economic crisis and increase tax collection, misguidedly supporting the notion that this is a temporary charge, with a low impact on inflation. To raise the support to approve this proposal, she has argued that part of the resources may be distributed to states and municipalities.

2) Tax reform of PIS/COFINS:

The presence of two tax systems (cumulative and non-cumulative) with different rates, in addition to the filing obligations for the gathering of taxes with the same destination (social security) as well as numerous legal disputes regarding the legal validity of these taxes indicate the urgent need to simplify these two tax obligations through unification to a single tax regime.

At this point, the Federal Government proposal sent to the National Congress has support among the Brazilian business community.

3) The ICMS reform:

An old topic of discussion about the federal structure of the country is whether  ICMS (the tax for movement of goods and services, which is broadly equivalent to VAT) is a favourable tax in view of its legislative structure (27 federal states legislating on the same tax). It creates a ‘tax war’ between wealthier states and states that need to create tax benefits to attract investment.

To confront this so-called tax war, the official message the President sent to Congress proposes (i) unifying tax rates and all 27 state legislations, and (ii) agreeing on a new ICMS distribution in a way to benefit both productive sector states and consumer markets states. 

4) Creation of a tax on large fortunes:

Recently, ministers of finance have gone public to defend a different tax regime for the rich. In this context, Rousseff said she hopes “to see approved measures already forwarded to the National Congress to review the taxation of interest on shareholders’ equity of companies and capital gains of individuals, important to increase the progressiveness of our direct taxes”. She said that there is, from her government, “political will to discuss other proposals for direct taxation, with higher tax progressiveness of taxes on income and assets, provided that they are compatible with this moment of fiscal rebalancing and resumption of economic growth”. 

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