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Tax reform in Brazil : Paulo Guedes confirms the merger of PIS/Cofins

Posted 2020-07-28

The Minister of Economy, Paulo Guedes, handed over this tuesday 07/21 to the National congress a proposal from the federal government with part of the tax reform studied by the economic area. The project was handed over to the presidents of the Chamber, Rodrigo Maia, and the Senate, Davi Alcolumbre.

First proposal of the tax reform deals only with the unification of the two federal taxes on consumption. More complex issues, such as the inclusion of state taxes in this single tax and changes in the Income tax, should be left for a second phase.

Unification of PIS and Cofins

As announced by the ministry, this first proposal only deals with the unification of PIS and Cofins, the two federal taxes of consumption. More complex issues, such as the inclusion of state taxes in this single tax and changes in the Income tax and in the tax burden should be placed in a second phase, with no date yet to be filed. 

Congressional proposals

Changes in the tax rules are already the subject of proposals under analysis in the Senate and the Chamber, in texts signed by the parliamentarians. Deputies and senators demand greater participation from the Executive to the matter in discussion.

Earlier this year, congressmen created a joint commission for the analysis of the tax reform proposals that are underway in the Legislature. 

However, due to the pandemic caused by the new coronavirus, work was interrupted and discussions were suspended. 

The proposal under review in Congress is not about reducing the tax burden. The project aims to simplify the collection of taxes, currently considered as an obstacle to the Brazilian economic development.

The Executive’s intention is to unify the 2 federal taxes on consumption, PIS and Cofins. They will give rise to the Contribution on Goods and Services, a “value added” tax (VAT).

The federal VAT rate will be 12%, according to the Ministry of Economy. This unification does not require changes to the Federal Constitution and, therefore, has an easier process in Congress.

Changes of PIS and Cofins taxes

How does it look today ?

  • Companies that settle the accounts with the Federal Revenue under the Presumed Profit regime pay the PIS/Cofins cumulatively  at a rate of 3.65% that does not generate tax credit.
  • Companies that settle their accounts under the Real profit regime pay PIS/Cofins non-cumulatively at a rate of 9.25%. In this case,  purchases of some inputs give companies the right to tax credits.
  • There are also some sectors that have different taxation, such as medicine, agribusiness, and product manufactured in the Manaus Free Tradezone.

How will it look ?

  • The government wants all companies to start paying PIS/Cofins in a non-cumulative manner, at a rate of 12%, but also to be entitled to tax credits on the purchase of all inputs

 

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Author's post: Europartner Accounting

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