In recent developments, the progression of indirect tax reform in Brazil has gained significant momentum. Last month, the House of Representatives approved a substitute bill, which has now advanced to the Federal Senate for further analysis.
One of the most debated aspects of the proposed reform is the introduction of the “split payment” mechanism. This innovative approach promises to streamline the payment process of the dual Value-Added Tax (VAT), potentially accelerating transactions and simplifying compliance. Nevertheless, its implementation, particularly during the transition period, has sparked extensive debate among stakeholders.
The reform also revisits the taxation of items within the basic food basket. Previously, certain products within the ‘extended’ basic food basket benefited from a partial reduction of 60% on the dual VAT. Under the new bill, essential items such as meat and other proteins are proposed to receive a full (100%) reduction. This adjustment aims to alleviate the tax burden on basic necessities. However, dissenting voices among senators highlight concerns regarding the fiscal implications and equitable distribution of tax relief.
To facilitate a comprehensive evaluation of the reform, the Federal Senate has scheduled 11 public hearings over the coming months, culminating in the presentation of the final report on October 22. These hearings will address critical topics, including the integration of technology and innovation in tax administration, the impact of reform on the civil construction sector, and the intricacies of the transition period and regulatory oversight.
In anticipation of the impending changes, the Federal Revenue Service has proactively published a Technical Note outlining the new requirements for tax documentation. This note addresses the introduction of new taxes—CBS [Contribution on Goods and Services], IBS [Tax on Goods and Services], and IS [Selective Tax]—and the phasing out of five existing taxes: ICMS [Tax on Distribution of Goods and Services], ISS [Tax on Services], PIS/Cofins [Social Integration Program/ Social Security Financing Contribution], and IPI [Tax on Manufactured Products]. However, the Tax Authority has prudently acknowledged that these guidelines are subject to modification pending the finalization of the reform’s legislative text.
Taxpayers are also preparing for the transition, considering both operational and economic adjustments. If the Senate introduces substantial changes to the current wording, it will return to the House of Representatives for further review. If both houses reach a consensus, the bill will be sent to the President of the Republic for sanction or veto.
In conclusion, the Brazilian tax reform is on the brink of becoming a reality. Stakeholders across the spectrum must brace for the sweeping changes that the new tax system will introduce.