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Brazil to consolidate VAT implementation plans

  • Dec 30, 2019 | Richard Asquith

Brazil is setting up a tax reform commission to review and consolidate a number of VAT implementation bills passing through the legislator at present. The agreement by leaders of the both houses of the Brazilian parliament, the Senate and Chamber of Deputies, will pave the way to forming a committee of 15 senators and 15 deputies to produce a consolidate bill for reforms.

Brazil's complex indirect tax regime

The two current proposals would consolidate the existing rage of consumption taxes (see below) over a period of years into a single, VAT. Brazil’s indirect tax system frequently tops rankings of the most complex in the world. Businesses have to comply with varying taxes in the 26 states, as well as municipal (city) and federal levels. Companies in Brazil spend on average 2,038 hours to comply with the various charges, or about 12 times the average in the wealthy OECD group of nations, according to the World Bank’s “Doing Business” index. 

Two Brazil VAT bills

Senate PEC 110/2019: consolidating existing federal and state taxes into a two VAT levies: a federal VAT on goods and services (Imposto sobre Operações com Bens e Serviços, IBS); and a local state tax on a limited range of goods and services (Imposto Seletivo). This proposal includes a 15-year implementation period. 

Chamber of Deputies PEC 45/2019: a single VAT, IBS, on goods and services at a single rate. This would include a complex shifting of tax collections between states and the federal bodies. OFINS and IBS will be reduced to 2% for two years. In the following 8 years, the other taxes will all be gradually reduced to a single rate for the full launch of IBS.

The final VAT plan would consolidate a range of complex and overlapping indirect taxes, including: 

  • ICMSImposto sobre Operações Relativas à Circulação de Mercadorias e Serviços de Transporte Interestadual e Intermunicipal e de Comunicações – the tax which applies to the movement of goods, transportation, communication services and other general supplies of goods. The current tax level is between 7% and 25%.
  • ISSImposto sobre Serviços – the municipal tax on the provision of services. The rate ranges to up to 5%.
  • IPIImposto sobre Produtos Industrializados – the federal tax on manufactured goods. The rate can be up to 300%.
  • COFINSContribuição Social para o Financiamento da Seguridade Social – the federal tax contribution to the Social Security Financing paid on company revenues. The rate can be up to 7.6% on monthly revenue depending on the activities of the company.
  • PISPrograma de Integração Social, at a rate 1.65% with COFINS together comprise the social contributions levy applicable to transactions.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which this year won International Tax Review's Tax Technology Firm of the Year. Richard qualified as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.
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