On June 22, 2023, the working group established by the Brazilian Chamber of Representatives unveiled a new constitutional amendment proposal (PEC 45/2019 Substitute), with the expectation that it will be put to a vote in the Chamber of Representatives during the first week of July 2023. The main points addressed in the proposal are as follows:
|New TAX|| Replace the ICMS (State tax on sales), ISS (tax on services), IPI (tax on manufactured products), PIS, and COFINS (social contributions on gross revenue) with the new “Dual VAT” system, which will consist of: |
IBS (State and Municipalities)
CBS (Federal Government)
ISE (Federal Government)
|Broad-based tax on goods and services, excluding exports and investments|| IBS and CBS: Applicable to imports, transactions involving cash value, as well as the supply of tangible and intangible goods, rights, and services, including concessions and licensing of rights, and provision of services. |
ISE: Applicable to imports, production, and sales of goods that have adverse effects on health and the environment, with a focus on environmental impact and carbon emissions.
|Tax rates||Standard rate, with the provision for other rates applicable to specific goods and services such as health, education, public transport, regional aviation, agricultural production, food for human consumption, personal hygiene products, and Brazilian cultural activities (with a 50% reduction in rates). Exemption from taxation for medicines.|
|Key technical aspects||Fully non-cumulative, without being tied to payments made in previous stages, while enabling the taxpayer to claim credits for all expenses related to their business activities, irrespective of whether they are associated with administrative functions or the core operations of the company. |
Principle of destination in interstate operations, where the tax is levied based on the destination of the goods or services.
Exclusion of tax cascading (not imposing tax on tax).
|Tax regimes with special considerations||Maintenance of the Simplified Taxation System (“Simples Nacional”);|
Continuation of the Manaus Free Trade Zone until 2073;
Maintenance of specific tax regimes should be ensured only for products and services that are challenging or infeasible to calculate through normal methods, such as real estate operations, financial services, insurance, cooperatives, fuels, and lubricants.
Confirmation through legislation that existing ICMS tax incentives will be upheld until 2032.
Establishment of a development fund by the Federal Government, aimed at reducing regional inequalities and incentivizing the continuity of enterprises in less developed regions.
|Phased implementation of the new TAX||The transition from the current tax system to the new TAX is expected to occur over a few years (eight years – from 2026 to 2032). This transition will involve a faster change in the case of PIS and COFINS, while a gradual change will be implemented for ICMS and ISS.|
|Cashback||Adoption of a cashback system for tax refunds for individuals.|