Brazil: Combination of 9 Taxes in 2019

After the Comissão da Câmara has approved the new tax bill on Friday, December 21st, 2018, it will now be channeled to the plenum of the House and then to the Senate. While the reform combines 9 different taxes  on goods and services (IBS) it will not reduce the overall tax burden.

Because the new law will change the constitution (PEC) the law cannot be announced by Congress this year. This is due to two federal interventions that are currently in place in Rio de Janeiro and Roraima. Thus, the tax reform will come into effect in 2019.

 

The Tax Reform

The main measure of the tax reform – a combined tax on goods and services (IBS) – will combine the following 9 taxes:

 

  • ICMS (tax on the movement of goods and services)
  • ISS (tax on services)
  • IPI (Industrialized Products Tax)
  • PIS (social integration program)
  • COFINS (social security contribution)
  • CIDE (contribution for interventions in the economic area)
  • PASEP (Public Server Patrimony Education Program)
  • IOF (tax on financial transactions)
  • Salário-educação

 

According to the correspondent Luiz Carlos Hauly (PSDB-PR) the IBS is similar to the VAT in Europe and Canada. At the time of payment, the tax will be levied on the revenue using a debit account from the respective company.

 

Reform Goals

The combination of the taxes has numerous goals:

  • Hinders tax evasion
  • Debureaucratization
  • Harmonization between federal states and municipalities
  • Competitiveness

 

The state profits from hampered tax evasion which could leads to an increased tax revenue. Furthermore, companies profit from the debureaucratization which saves them time and money.

Correspondent Hauly explains the process:

 

“Through electronic supervision the law will lead to debureaucratization on the one hand while hindering tax evasion on the other.”

 

Moreover, the tax reform may stop the tax war between the federal states and municipalities. Also, by reducing the bureaucracy costs, Brazilian companies may become more competitive on the internal market.

 

These regulatory changes could affect your business with view to customizing or support of your ERP/SAP system. Please contact us to learn about possible necessary reactions to the changes – we are happy to assist you!