Source: Terra - ECONOMY - 20/07/2010

Reuters News

See below for details of proposals presented by the government and modified by Congress for a tax reform in Brazil. According to experts consulted by Reuters, simplifying the tax system should be one of the objectives of the future president.

Congress proposal

The proposal was presented to the Temporary Subcommittee on Tax Reform (Caert) by Senator Francisco Dornelles (PP-RJ).

It proposes to merge almost all indirect taxes (ICMS, IPI, PIS, Cofins, Cide, Telecommunications Technological Development Fund, Telecommunications Universalization Fund) into a value-added tax, with single legislation, and the amount of the tax easily identifiable by the consumer when purchasing the taxed good or service.

The project eliminates the tax war by establishing that national VAT is collected in the State of origin and transferred automatically by the banking network to the Union and other States, according to the proportions that the Union and all the States currently have in collecting taxes that will be replaced.

Among its advantages, it would be possible to immediately exempt exports and investments, recognizing the credits accumulated in previous operations.

It would also serve to curb the tendency for the Union to create non-sharable contributions, by including in the Constitution the concept of tax (all taxes, fees and contributions) and to institute the sharing of all those that may be created.

Finally, Francisco Dornelles' proposal aims to extinguish the tax on Great Fortunes and maintain the special regimes for micro and small companies (Simples), the incentives of the Manaus Free Trade Zone and the presumed profit regime for liberal professionals. There would also be an increase in the municipalities' own revenue with the current ITR (today from the Union) and ITCMD (today from the States).

Government proposal

The government proposes that the ICMS legislation be unique for all states, combating the fiscal war with the reduction of the interstate tax rate and expanding the portion of the collection that belongs to the destination state of the taxed goods or services.

It also proposes replacing taxes on goods and services with two value added taxes, one state (VAT-E) and the other federal (VAT-F).

Under the project, the ICMS would be maintained for approximately five years, after which it would be replaced by VAT-E.