The judgment on the constitutionality of the incidence of the Contribution of Intervention in the Economic Domain (Cide) on foreign remittances was removed from the agenda last year.
The first comments – Part 1 and Part 2 dealt with the occurrence of (concrete) facts that will lead to an increase in the tax burden on business, due to monetary and fiscal policies.
Now, with the approval of the fiscal policy by the new Government, we have the dissemination of more concrete – together with macroeconomic – measures that prove the evaluation brought to light as to the debate on the increase of the tax burden for companies and individuals.
1 – CARF quality vote return
2 – Repeal of the decree that reduced the rates on the financial revenues of companies
3 – End of “PIS” and “COFINS” credit on “ICMS” for raw material purchase
4 – Zero Litigation – as a measure to reduce tax litigation
5 – Profit arbitration of subsidiaries abroad
6 – Profit taxation in companies owned by individuals abroad, located in countries with favoured taxation
Such measures are to increase litigation and costs of companies causing only immediate effects, lacking the support of a structured plan to sustain the tax benefits recently announced.
Here are the measures foreseen in the government’s economic policy:
Revenue reestimation: R$ 36.4 billion
Recurring revenue actions: R$ 83.28 billion
“ICMS” credit utilization: R$ 30 billion
“PIS” and “Cofins” on Financial Revenue: R$ 4.4 billion
“PIS” and “Cofins” on fuel: R$ 28.88 billion
Permanent effect of reduction of litigation incentive in Carf: R$ 15 billion
Permanent effect of voluntary disclosure incentive: R$ 5 billion
Non-recurring receipt action: R$ 73.00 billion
Permanent effect of reduction of litigation incentive in Carf: R$ 35 billion
Permanent effect of voluntary disclosure incentive: R$ 15 billion
Primary revenues from “PIS/Pasep” assets: R$ 23 billion
Expense reduction actions: R$ 50 billion
Permanent effect of contract and programme review: R$ 25 billion
Authorization for execution of lower than authorized amounts in LOA 2023: R$ 25 billion
The minister of economy announced five other measures with the potential to generate permanent revenues in the amount of R$ 83.28 billion. Out of that amount, the government expects to raise R$ 28.88 billion from fuel retaxation as of March.
However, the reality contrasts with this so-called new “tax adjustment”. XP Chairman and partner, Rafael Furlanetti, (BLOG PCO of 28/1), gives us a warning about the risk brought by the raise in future interest rates. He says the rates serve as a benchmark for the sustainability of public accounts. A raise in future interest rates indicates that the financial market estimates that the government will “need more money in the coming years.” According to Furlanetti, “the higher the interest rate, the higher the cost of public debt to the country. This cycle results in a contractionary economy.”
Thus, what emerges from this economic situation is that to sustain the attendance of social spending, and other budget expenditures, it will be necessary to increase the collection of taxes.
Such measures, added to those reported above, are here reproduced by our team and as such kept on the radar of experts as measures to (des) stimulate (sic) the non-payment of taxes:
a) In this sense, there are proposals to change the way tax debts are corrected, with the incidence of compound interests instead of simple interests, which would require a change in the National Tax Code.
b) They also propose reconsideration on the scope of “tax secrecy” as an institution.
c) The suggestion would be to eliminate taxation on the presumed profit of companies, reduce the scope of the Simples Nacional and institute progressivity in the taxation of corporate profits.
d) In the context of individuals, the proposal is to reach a final rate of 35%, something that had already been studied by the time of Lula’s candidacy campaign.
e) There is also the idea of taxing dividends, with an incidence table similar to that of the taxation of individuals.
f) Taxing legal entities of regulated professions used and approved by labour reform (outsourcing of activities means and purposes).
g) From outside point of view, the convenience of renewing or not the exemption of fuels, which expires at the end of the year.
Therefore, for 2023 and 2024, we will have: 1º) high interest rates with the maintenance of SELIC around 13.75%; 2) increase in delinquency; 3) high inflation rate; 4) fall in consumption; 5) low growth; 6) high exchange rates; 7º) increase in unemployment rate; 8) government subsidies presenting fiscal imbalance outside the tax responsibility curve. (that’s not what we applaud, but they are the facts…)
Petista’s track record in charge of the economy does not indicate that there will be a cut in expenses. In this government, the balance of public accounts will be managed through tax increases. That’s the view of economist Carlos Kawall (photo), founding partner of Oriz Partners and former Treasury Secretary. “Sooner or later, more or less painfully, the increased tax burden is contracted,” he said. He adds that “if we think about the DNA of PT (Labour Party) and Lula, there has never been reduction in spending. On the contrary. They shall follow on the same path.”
The new government’s signals in the economic field have created a difficult dilemma to solve. How to make a 4-point adjustment of GDP (the necessary to control the trajectory of debt) without increasing tax burden and without any structural spending change plan? For Daniel Leichsenring of Verde Asset, “there is no magic math.” “The only possible magic that makes all this compatible is inflation, which has the power to extract money from people and fund the government,” he said during Credit Suisse’s Latin America Investment Conference. Daniel recalled that the last “magic math” that Brazil tried to do was during Dilma’s Government, and it resulted in the biggest recession in history.
According to Mauro Rochlin of FGV-RT (Neofeed of 2/7/2023), “the weight of this new fiscal design should rest on revenues, including tax reform that increases taxes, ending the exemption on dividends, profits, probate, and be more flexible in relation to spending”. (our underlining)
If all these facts, data and information were not enough, we still have the cases pending trial in the Supreme Court, which make up the tax costs of Brazilian companies.
A legal website has cast 30 cases whose trials, both in the virtual plenary and in the physical court, are expected by taxpayers this year.
In only 13 of them, the Union estimates an impact of up to R$ 622.6 billion over five years, according to data from the Budget Guidelines Act (LDO) of 2023.
Let us see.
ICMS Difal collection to start
15 state governors said that the losses of revenue for the States are calculated at R$ 11.9 billion if the understanding that the ICMS Difal can only be charged in 2023 prevails. Online retailers are the most affected by the decision.
“ICMS” credit transfer between states:
The Supreme Court has already ruled out the incidence of ICMS on the transfer of goods between establishments of the same holder located in different states. Now, do they need to define when the measure will be in force?
Business sectors claim that they can lose billions a year in tax credits, depending on the definition – the situation affects everything from industry to agribusiness and retail.
“PIS” and “Cofins” collection on bank revenue:
The Supreme Court will define whether financial institutions should contribute to PIS and Cofins on their financial revenues
Reduction of tax refunds to exporters
The Supreme Court discusses whether the Executive Branch can change the percentages of tax refunds in “Reintegra”, a federal government program created in 2014 to promote the export of industrialized products.
According to the Attorney General’s Office of the National Treasury (PGFN), if the Union loses, there may be a financial impact of R$ 7.3 billion annually to public coffers and the return of R$ 42.56 billion to exporting companies.
Punitive tax fines
Different actions are filed in the Supreme Court questioning penalties imposed by the tax authorities and their validity as to exceeding tax due.
Taxation on remittances abroad
The judgment on the constitutionality of the incidence of the Contribution of Intervention in the Economic Domain (Cide) on foreign remittances was removed from the agenda last year. The agenda is particularly relevant for the technology and telecommunications sectors