Recently, the push for tax reform in Brazil has gained momentum, receiving approval from the Brazilian Congress. This suggests that the proposal is likely to be reviewed and voted on in the Senate by the end of this year.
Generally speaking, the proposed reform aims to simplify the tax system by standardizing consumption taxes across various economic sectors and significantly reducing tax benefits. From an initial international trade perspective, it appears that customs duties such as import taxes and fees for using the foreign trade system will remain unchanged from the current scenario.
However, upon examining the approved text, several aspects emerge that could impact foreign trade. These include new constitutional tax principles focused on simplicity, transparency, fiscal fairness, and environmental protection. The reform also introduces a new rule for IPVA (Tax on Vehicles), extending its scope to include water and air vehicles like jets, yachts, and speedboats – this includes imported items. Additionally, the proposal outlines tax exemptions for food, medicines, and other goods.
Moreover, it’s crucial to consider other taxes levied on imported goods and services, such as IPI, ICMS, PIS/Pasep Contribution, Cofins, Cide-Fuels, and ISS. The Additional Freight for the Renewal of the Merchant Marine (AFRMM) and the Merchant Rate are also applicable to waterway imports. The tax reform is expected to have an impact in these areas as well.
Many of the taxes previously mentioned will be eliminated and replaced by a Dual Value Added Tax (VAT), which will consist of the Contribution on Goods and Services (CBS) and the Tax on Goods and Services (IBS). Specifically, CBS will replace existing taxes like IPI, PIS/Pasep, PIS/Pasep-importation, Cofins, and Cofins–importation. Meanwhile, IBS will take the place of ICMS and ISS.
The rate for these new taxes has not yet been determined. However, projections suggest that the combined rate for both taxes will range between 25% and 28% to maintain current revenue levels. The official rate will be set in 2024 through a complementary law. Therefore, uncertainty will persist until then, even if the tax reform is approved.
In addition to CBS and IBS, the proposal approved by the Chamber of Deputies introduces a new tax known as the Federal Selective Tax, colloquially called the ‘Sin Tax.’ This is an extrafiscal or regulatory tax designed to discourage the consumption of products deemed harmful to health, the environment, or other aspects of society, such as cigarettes, beverages, certain environmentally impactful agricultural inputs, and weapons.
In summary, imports of goods and services will be subject to two forms of Value Added Tax (VAT): CBS and IBS, at a yet-to-be-established rate that is expected to range between 25% and 28%. Additionally, the importation of specific goods like cigarettes and beverages will be subject to the Federal Selective Tax, also known as the ‘Sin Tax.’ As for the existing customs duties on imports, which include the import tax and the Siscomex (Integrated Foreign Trade System) Fee, no changes are expected as a result of the tax reform.
Thus, based on the current text of the proposed law under discussion, the importation of goods and services will be subject to the following taxes: import tax, CBS, IBS, Federal Selective Tax, Siscomex Fee, AFRMM, Mercante Rate, and Cide-Fuels.
It is now important to monitor any specific changes and await the Senate’s approval of the tax reform, with the expectation that the new system will not only simplify processes but also stimulate the Brazilian economy. The goal is to make Brazil more competitive and enhance its foreign trade.