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Tax reform: What will the new taxation rules be like after the enactment of EC 132 by the National Congress?
On December 15, 2023, the National Congress approved the final wording of Constitutional Amendment Bill (PEC) no. 45/2019, which was enacted as Constitutional Amendment (EC) no. 132/2023 – “Tax Reform”. EC 132 substantially changes the way Brazil taxes goods and services, replacing several of the current “indirect taxes” (ICMS, IPI, ISS and PIS/Cofins) by basically three new ones: the Goods and Services Tax (IBS), the Contribution on Goods and Services (CBS) and the Excise Tax (IS).
Lefosse tax team analyzed how the new rules will be like after the approval of the Tax Reform by the National Congress. Access our exclusive analysis here.
What are the next steps?
The first round of the Tax Reform was finished on December 15, 2023. The last step was the enactment of the PEC upon a joint session of the two houses.
- The enactment took place on December 20, 2023, as PEC 45 was converted into EC 132, which was as issued on December 21, 2023
The second round of the Tax Reform will be the regulation of all subject through infraconstitutional legislation (complementary and ordinary laws).
Next legislative activities
The Executive Branch must present to the National Congress:
- In 180 days as of the enactment, the bills of law mentioned by the EC 132 such as:
a) Complementary laws for the introduction of IBS and CBS, specific and favorable regimes as well as the administration committee; and
b) Ordinary law for the introduction of IS.
- In 90 days as of the enactment, the bills of law to reform income and payroll taxation
What will the consumption taxation be like?
Broad taxation
- IBS and CBS will be collected on the transactions with tangible and intangible goods, including rights, services, and non-habitual imports.
- Flat rate (possibly around 27% according to studies from the Ministry of Finance) + few tax benefits
Full non-cumulative system
- Broad credit basis on contracted activities – virtually all expenses subject to taxation will be eligible for credits (except those related to personal use and consumption)
- Guaranteed maintenance and use of export credits
- Credits potentially linked to an effective payment of the tax by the supplier
Simplification and application of the destination principle
- Simplification of the current system, reducing tax jurisdiction conflicts
- IBS and CBS will not be included in their own calculation basis (no gross-up will be applied)
- IBS and CBS will follow the destination principle
Administration committee
- Joint action between the Union, States, Municipalities and the Federal District for the administration and collection of IBS and CBS, as well as in the formatting and conduction of administrative litigation related to these taxes
Lefosse’s Tax Team closely monitors the changes that impact the Brazilian market. For further clarification on this matter, or others that may be of interest to you, contact our professionals.
To find out more, access our exclusive analysis on the main changes of the EC 132 and the sectorial impacts here.
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