Considerations on the partial return of Provisional Measure 1227/24 by the Senate and the Reality of Tax Reform in Brazil

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Provisional Measure 1227/24, which prohibited the offsetting of PIS/Pasep and Cofins credits with other federal taxes, was met with strong opposition from the business sector, resulting in the Senate president partially returning it a week later, invalidating its most controversial section.

During the debates, strong questions were raised from various sectors about the tax collection bias of the tax reform approved in 2023, with Constitutional Amendment 132.

This reform, whose regulation is currently under analysis in Congress (PLP 68/24), has generated criticism for centralizing tax collection in the Union and limiting the budgetary autonomy of states and municipalities. "More Brasilia and less Brazil".

EC 132 introduced the IBS, replacing five consumption taxes (IPI, PIS/Pasep, Cofins, ICMS and ISS), but also created new taxes: in addition to the Tax on Goods and Services (IBS), the Contribution on Goods and Services (CBS), the Selective Tax (IS) and the State Contribution on primary and semi-produced products, resulting in partial simplification.

In addition, the Management Committee, with the participation of the Federal Revenue Service, will manage the distribution of revenue, which will increase political interference.

Thus, the objective of simplifying the tax system is questionable, given that PLP 68/24 has 499 articles and 310 pages. Real simplification would require unifying non-cumulative taxes, respecting the principle of non-cumulativeness (avoiding the "cascade" of taxes, i.e. paying tax on tax) and relieving the payroll (reducing or even eliminating the charges and taxes that companies must pay to the government on their employees' salaries and benefits, such as social security contributions, FGTS, and others), which has not been contemplated.

There are concerns about the increase in the tax burden and the promise of fiscal neutrality, especially with the forecast of an average rate of 26.5% for CBS and IBS. Agricultural products that currently have reduced or zero rates could face significant tax increases.

The creation of the Selective Tax (IS), cumulative and levied on products harmful to health or the environment, represents an additional complication, replacing the IPI in a less favorable way - alongside the extra-tax effects it may have on society.

So, apparently, without fulfilling the expected simplification and neutrality when analyzed from the ground up, the reform seems to increase tax collection, as well as concentrating it in the Union. The publication of Provisional Measure 1227, which prohibited the offsetting of Pis/Pasep and Cofins with other federal taxes, highlighted these concerns, leading sectors to prepare to minimize the adverse impacts.

Well, it's true that we'll have to wait until 2033 to see if the objective of simplification has been proven to have been achieved, and moreover, if the new system hasn't led to an increase in the tax burden, since another argument for the urgency of approval was precisely the promise of tax neutrality.