Image Super Tributação
1 – Will we be able to have an VAT – Value Added Tax – here in Brazil?
There are many obstacles that governors and politicians put on top of that. That’s the big problem, because it works all over the world and it’s very simple. It is a value added tax, for each stage of the process, from the manufacture of the product to its commercialization at the final point. It depends on the agents that are in that chain. Each one is adding something to the price to be able to pay their business, to cover the costs. This tax would be levied as it would be transiting the supply chain from the inputs, according to the bill of the Federal Deputy and rapporteur of the Special Commission on Tax Reform, Luiz Carlos Hauly.
Let’s suppose, someone who has extracted it from the first stage, will collect the tax that is the VAT. In the process of assembling the input, credits are credited with what was paid, and the sale of the product is paid on the exit. For example: the supermarket purchases from the wholesale cosmetics industry and will receive VAT. He credits himself with this VAT and selling to the consumer he pays the consumer. So his taxation is the difference from what he paid on the sale minus what he credited himself with the purchase. This is what we call value-added tax or non-cumulative tax.
The problem is that you have the ICMS, which is a tax on operations related to the movement of goods and on services of interstate, intermunicipal and communication services, but in addition we have IPI – Tax on Industrialized Product -, which affects only the industrialization of the product. We also have PIS / COFINS contributions and CIDE – Contribution of Intervention in the Economic Domain – and which focuses mainly on fuels. All are taxes that affect consumption.
So we have a very large amount of taxes focusing on consumption and the consumer is unaware of what they pay. That is the great advantage of VAT because as it is being added, when the consumer buys he already knows the sum of the tax that is in the product. He identifies clearly. Today you do not know how much you have of IPI in the product, of PIS / COFINS, you do not know how much you have nor of ICMS, because it had a very great distortion when it was instituted the Tax Replacement, or ST – * Substituição Tributária – in ICMS, in 2008.
* Substituição Tributária – tax collection mechanism used by federal and state governments that assigns the taxpayer the responsibility for paying the tax due by its client
Since then there have only been complications around itself. Countless. Since each state of the federation, including the Federal District, has the prerogative to establish rules for the collection of this tax, to exclude or include products, the ICMS becomes a national chaos.
2 – About five years ago the industries traveled through several states to reach their destination, diverting from excessive taxation. They were the fiscal incentives of the states. How is it today?
It is about tax planning, something that occurs until today, where the industry will seek to collect less tax within the legality and that ends up generating these deviations, which let not to be a distortion.
What happens is that it is often more advantageous for a company to send the product to a distributor outside the state of São Paulo, for example, in Minas Gerais, where, for a rule in that state, there is no Tax Replacement – ST (* collection mechanism of taxes used by the federal and state governments for which ICMS liability for the operations or services is attributed to one or more persons who are in a production chain). So, who will collect the Tax Substitution is a distributor of Minas Gerais, which in turn will collect ST when it sells to the state of Minas Gerais. If he does not have this distributor there, when he sells to the São Paulo distributor, he has ST. Except that the São Paulo distributor, if it were sold to Minas, to other states, it would have to collect the ST again for those states and then it would have to credit itself of what it collected in São Paulo. The big problem that we have in this country are the credits that the government owes to the companies, not only of ICMS but also the contributions of the PIS, the COFINS of the IPI, a series of taxes – the government knows how to charge, but it does not pay. He asks for a number of things that will postpone payment to eternum.
3 – Has there been a change in the ICMS since then?
Today the vast majority of companies choose to have a Distribution Center in other states because of tax incentives. The state governments where the companies go, offer ICMS reduction benefits, if the company has a Distribution Center in that state, because when the company invoices from there to other places, it will not pay the full tax rate, only a part. So, this is an issue that is not addressed by the logic of logistics, but by tax logic.
And now there is the endorsement of the federal government, which issued supplementary law n ° 160 that endorses these tax incentives. Previously, in order for states to issue such incentives, they needed approval from CONFAZ – Conselho Nacional de Política Fazendária. The federal government has lowered this complementary law by extending the term to 15 years. There is no longer any need for unanimity in the Council. Only 2/3 of the participants and another 1/3 of the states in each region of Brazil are sufficient to authorize the granting of a new tax benefit.
From 2013 to here, after our last conversation with cosmetics br, we only had the increase of difficulties, mainly of ICMS. So we had a tax war called the War of the Ports. What happened was this: states like Santa Catarina and Espírito Santo gave incentives to importers who used their ports. So it was a benefit we gave to imports. We were the only country in the world that gave tax relief to imported goods. So how it worked: they made a hit with the state government and when they mattered, there was the incidence of ICMS. The state in turn made a deferment of this ICMS, which was only collected when the importer sold to the market. In this situation he made up for the fact that he had not picked up at the exit. But what happened? If the importer sold into the state, he collected the normal ICMS into the state. If he sold out of the state, he would register the normal ICM rate, but the state gave him a presumed credit, so that instead of collecting 12%, he collected 2% for example. And the state that received that merchandise had credited the total to a tax document that was not true. After a lot of pressure, the solution was to create a labor-intensive mechanism, where companies would have to calculate on each item produced how much they have import content or do not have, so that the interstate rate would be reduced to 4% instead of 12% such as to diminish this benefit they gave. So for example: who buys if it was credited in 12%, but only collected 2%. Not now, if you credit 4%, then the benefit of only 2% may not matter. Thus was created this War of the Ports, and in this war, all companies, whether simple or whatever, have to make the calculation of the import content, to be able to define whether the product has 4% or not. This is done through an overcomplicated mechanism in which tax systems of companies have to do this for each product. That is, open their formula to see the components of the cost of the product, which are imported, which are not, for the system to make the account and determine the percentage provided by law that allows this product to have an ICMS tax rate of 4 %. This is in effect. In fact, the company will only recalculate in the month that there is a change of input imported by a national. Because if the product has more than 40% of import content, the rate is 4%, if it has less than 40%, the rate is 12%.
4 – How long does this take from companies?
Time and a huge cadre of employees working in this area. But it’s a kind of unproductive work. That is why we have competitiveness problem.
5 – Was that the only change? E-commerce today has a lot more presence than in 2013. How does the e-commerce tax issue work in a large country like Brazil?
Then we had a second amendment, which affects the non-face-to-face trade destined for the final consumer not registered in the ICMS. The goal was to pick up e-commerce. What happened? A consumer from Pernambuco entered the website of a company selling products by e-commerce to buy a perfume for example. When selling this perfume, for that state, if the e-commerce operator was based in the state of São Paulo, as it is a sale to a non-contributor consumer, that is, for own consumption, the perfume leaves with a full rate of São Paulo. So if the product had 18% of ICMS, it leaves with 18% ICMS collected for the state of São Paulo.
Then, states that did not have the electronic commerce operator complained that the ICMS was all for the state of São Paulo, while the consumer of Pernambuco stopped buying at the retail of that state, where the tax would be collected. Very fair. The problem was the solution that was given.
If you have created a system in which the e-commerce operator, or whatever by catalog, has to collect the ICMS for the state of Pernambuco in the part that it belongs you. For this he has to know what is the ICMS rate of the state of Pernambuco. If he does not get a state registration in Pernambuco, he has to collect by advance guide, attach the invoice and go along and already deposited in the bank paid. So it’s a big complicating factor because states have different ICMS rates, especially if we talk about our industry – from basic food baskets of 7% to 27, 29% for example. An e-commerce operator today has to know the ICMS rates of all states and all the products it markets. So let’s look at the difficulty of a big e-commerce operator, who has thousands of items in his portfolio, the work he has given and continues to give to him. On the other hand, when they require information from electronic files and electronic invoices, they have developed intricate systems to serve them. In that case they have not developed a system to be automatic as well. And so the e-commerce vendor could collect monthly and make his life easier. But not. Usually the state farm secretaries think exclusively about them and the consumer and the taxpayer do not matter. So this was another complication, the second one that was created.
6 – Can VAT solve all this bureaucracy? Is there any perspective on when it could be deployed?
The VAT proposed by deputy Hauly and how it is in force in Europe and several countries here in Latin America, if it is deployed,as a substitution for the various consumption taxes,on consumption it will join ICMS, IPI, PIS, Cofins, CIDE and ISS.There is no date for this to happen, political will is a determining factor. But at some point this will need to be done.
The great complexity for the introduction of VAT is the sharing between the federative entities. Because the proposal of Deputy Luiz Carlos Hauly also talks about having the centralized treasury, a large area of centralized intelligence to manage the whole chain of taxes and then distribute it to the federative entities, which is quite difficult to obtain consensus in Congress National. Imagine, each state, each municipality and its collection areas. It would be the best of the worlds, a civilized Brazil. But that depends on political will.
Of course that the objective of this project is not to reduce the tax burden, but to simplify the way of collecting and how it involves all these areas of interest, at all levels – municipal, state objections and counterpoints will be numerous.
7 – What is CEST? Is there still more taxation? Which ones?
A third change from 2013 to here, more specifically from 2015, when a new code was created to classify products that are in the Tax Replacement Code: the CEST. Its objective is to determine, given a change that was made in the **Simples Nacional (differentiated tax regime, simplified and favored), where they were discriminated, which are the products that can have ST (Tax Replacement) for companies opting for the Simples Nacional.
** Simples Nacional – differentiated tax regime, simplified and favored
So one came to the conclusion that if small companies, that have opted for the Simples Nacional do not pay, who is not Simples also should not have TR (Tax Replacement) for these products, because otherwise it would be very confusing the inspection of what is inside the trade, whether or not the ST was collected. Then was created the CEST where the various sectors were separated, one of them is the ours, where the products were discriminated, assigned a code for each item, for the TR. So another code was created and it started to be mandatory record on the tax document as of July 1st of this year. For a change, this CEST has in our case some legal insecurities for certain products, because it is not very clear in the description what is that it determines, which product specifically is included in that code, besides having another obligation to put it inside the tax document.
*** ST – Substituição Tributária – TR – Tax Replacement – tax collection mechanism used by the federal and state governments that assigns the taxpayer the responsibility for paying the tax due by his client
Then, on top of this CEST came out, this year, one that is a bomb that comes around, which is the **** Agreement ICMS 52, where the CONFAZ, which is composed of treasure secretaries of all states, with the pretension – and even if it was this would be cause for applause – of harmonizing the rules in the states for the TR, has placed within this agreement conditions that directly affect the form of strategic distribution of the companies, where it creates what are called rules of interdependence, which comes from the IPI, which in fact it relates interdependence when you have a distributor and an industry belonging to the same economic group, but separate legal entities, which is very common in the cosmetic sector. So, if there is such interdependence, rules are created to increase the supposed value-added margins for Tax Replacement, which is greater than when there is no interdependence, so that there is no decrease in TR. But these rules of interdependence come in the IPI legislation, which has rules of interdependence, which have been extended with conditions by state, certain regions within the state.
**** Convênio ICMS 52 – Agreement ICMS 52 – general rules to be applied to tax substitution and of ICMS anticipation with taxation closing, related to subsequent operations, established by agreements or protocols signed between the States and the Federal District.
In addition, it gives the discretionary power for the State to determine which is the basis of calculation for TR. This calculation consists of getting the company to collect ICMS from the chain ahead, it has to collect this ICMS in advance, instead of letting the chain collect it. So you have to have a rule to estimate what is the price that it will have in the retail, because it’s the ICMS you’re going to collect. Treasure secretaries have virtually the discretionary power to determine what they want, because they can use digital files that they have, they can allow the industry sectors to contact research institutes to estimate the retail price, which would be ideal, has become an alternative, can determine any rule.
The problem is that until then an MVA (Value Added Margin) has been used that was verified in São Paulo and all states were using it and that now the CONFAZ and its state secretariats can determine by own criteria. So, there is this situation in which the states are and what they can do. And this ICMS52 that is there, and that Abihpec (Brazilian cosmetics association) is seeking to combat, because if it is applied, the price will go up a lot. The states will lie down and roll on and consumers are going to pay.
And there is another novelty that is taking body, which is the State Fund for Eradication and Combating Poverty that states are beginning to implement as if it were an increase of the ICMS itself. The basis of calculation is the same and they have by constitution, that calculate up to 2%. Some states, such as RJ AL PE, DF, RJ, MG, have already implemented it, including São Paulo, but not for our products.
8 – What mainly differs ICMS and VAT ?
The value-added tax ICMS includes itself in its calculation basis, whereas in VAT the value is the cost of the merchandise with the value added clearly identified and separated and there applies a percentage on it. The ICMS is not calculated inside of it. For example the commodity that you use the calculation basis 100 to calculate the 18% of ICMS, results in R $ 18.00 of ICMS. Their calculation base is already with those R$ 18.00 of tax within it, while in the situation of VAT the calculation basis would be $ 82 and not 100. It would be the value of the product and not of the inputs.
9 – How did other countries implement VAT?
It is a matterof central of taxation intelligence, and culture, civilization. You can be sure that here in Brazil, it is very common to practices , due to the tax burden so high, the culture of tax evasion. In developed countries VAT works well, even because the load is not heavy. There is the return to the citizen and then there is that desire not to pay the tax.