décembre 21 2023

Brazilian Tax Reform - Constitutional Amendment no. 132/2023

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After more than two decades of discussions,  the National Congress approved, and the President of the Republic enacted the final text of the Constitutional Amendment n. 132/2023, known as the Brazilian Tax Reform on consumption. The reform significantly changes the current taxation of goods and services, substituting the indirect taxes in force by a dual Value-Added Tax (IVA), composed by a Federal-level Goods & Services Contribution Tax (CBS), and a State and Municipal-level Goods & Services Tax (IBS), besides the creation of an Excise Tax (IS).

In summary, the CBS replaces the current Federal Social Contributions (PIS/COFINS), and the IS partially replaces the current Tax on Manufactured Products (IPI). On the other hand, the IBS is a merger of the current State Tax on the Movement of Goods and Services (ICMS) and the Municipal Tax on Services (ISS).

The main characteristics of these new taxes, which are explored in detail in the attached PowerPoint, is a broad-based and non-cumulative tax on goods and services, charged at the destination, with few tax rates and exceptions, beyond the non-levy of the current taxes in the calculation basis of the new taxes.

The new excise tax (IS) is extra-fiscal, and can levy on the extraction, production, sale or import of goods and services considered harmful to human health and the environment.

States that had, on April 30, 2023, funds allocated to investments in infrastructure and housing works and financed by contributions on primary and semi-manufactured products established as a condition for the fruition of deferral, special regime or other differentiated treatment relating to the ICMS, may create similar contributions, not linked to the mentioned tax.

Now begins the second phase of legislative activities, regarding bills to regulate these new taxes, especially the complementary laws for the institution of IBS and CBS, specific and favored regimes, and the management committee, in addition to the ordinary law relating to IS.

According to the new amendment, the Executive Power shall forward all bills of law concerning the regulation of the Tax Reform, to the National Congress, within 180 days after the promulgation of the Constitutional Amendment.

Additionally, the Executive branch must forward projects that deal with the issue of income tax reform and payroll taxation reform within 90 days.

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