Brazilian Tax Reform Moving Forward - Deputies approved project in Plenary session

The Tax reform in Brazil is a topic of great relevance and is moving forward - the Brazilian Chamber of Deputies recently voted on the government's tax reform proposal, Complementary Law Project 68/2024. This proposal brings several changes, in relation to the original project, including:

• Regulating aspects of IBS, CBS, and IS collection, which will replace PIS, COFINS, ICMS, ISS, and partially IPI. 
• Reductions in tax rates for different sectors and products.
• Tax benefits and incentives such as presumed credit, reduced calculation bases, exemptions, and tax refunds for low-income consumers (cashback).

These changes aim to improve the tax system and provide relief for various sectors and consumers.

Below are some of the relevant topics covered in the bill which now goes to the Senate for analysis and final voting.

Zero-tax animal protein

During the voting on amendments, an amendment was approved that includes meat, fish, cheese, and salt on the list of foods with zero IBS and CBS rates. In addition, the use of seawater, pure sodium chloride, and other similar agents will also be zero-rated. These adjustments demonstrate the sensitivity of the legislative process to the diverse needs of the Brazilian population.

Loaf of bread and flour

In addition to these products, the bill also included corn oil, oats, and flour at the zero rate, nevertheless, it did not specify which types. However, some types of flour, such as corn, remain on the 60% reduction table.

Sliced loaf bread and tomato sauce were also added to the 60% tax reduction table.

Perfumes, weapons and ammunition

The amendment to include weapons and ammunition in the Selective Tax was rejected by the Plenary with 316 to 155 votes, sparking many debates. The Tax on Industrialized Products (IPI) will be discontinued by 2027 from the majority of transactions, and this loss of revenue will be compensated by the IBS and CBS rates. Therefore, with the rejection of the amendment, weapons, and ammunition will possibly have consumption taxes 55% lower (without the IPI). Products such as automobiles, cigarettes, and beverages will have the IPI partially counterbalanced by the Selective Tax due to the environmental impact. In addition to weapons and ammunition, perfumes (with a 42% IPI), and air conditioning (with a 13% to 35% IPI) will also have their tax burden reduced.

Cashback

Families enrolled in the specific social program, with a per capita income of up to half the "minimum salary", may benefit from tax refunds. The rules for "cashback" will be valid from January 2027 for CBS, and from 2029 for IBS. The calculation and refund method still depends on specific regulations, but there is a provision that monthly consumption services (for example, electricity, water, sewage, and natural gas) have the cashback value granted even in the account. In other cases, the government plans to transfer the money to banks within 15 days after verification, which will have another 10 days to transfer to the beneficiaries. The text defines CBS and IBS refund rates in several situations, except for products with a selective tax that is harmful to health and the environment. 

New category: "Nanoentrepreneur"

The approved text innovates by creating a new category of entrepreneur called “nanoentrepreneur”, which allows exemption from IBS and CBS, as long as they have not adhered to the simplified individual microentrepreneur (MEI) regime.

To qualify as a nanoentrepreneur and be exempt from IBS and CBS, an individual must earn up to R$40,500 per year.

Taxation of purchases through digital platforms

Purchases made by individuals through digital platforms abroad will be subject to importing taxation, including for purchases of up to 50 dollars. The foreign supplier will be responsible for paying taxes under the regular regime, and the digital platform will be responsible for payment under the simplified import regime. If the supplier is not registered or the taxes are not paid by the platform, the individual importer in Brazil will have to pay the taxes to receive the international shipment. The only exceptions will be for imports exempt from Import Tax, are those where both the sender and the recipient are natural persons without the intermediation of a digital platform, and in the luggage of travelers and crew, accompanied or unaccompanied.

Some other important points of the approved text:

• 30% reduction in taxes for domestic animal health plans.
• All medicines not listed at zero rate will have a 60% reduction in the general rate.
• Foreign tourists will receive a refund of VAT taxes on products purchased in Brazil and packed in their luggage.
• Rejection of the amendment that intended to extend the 60% reduction in taxes for all properties

As we continue to monitor the developments in Brazil, it is crucial to keep track of this topic. Stay tuned for updates from Vertex to stay informed on the latest trends and changes.