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Tax Reform - Proposals in Process

The reformulation of the tax system based on the unification of taxes and simplification of the collection system was one of the priorities announced by the economic team at the beginning of President Jair Bolsonaro's administration in 2019. From that moment until today, the government has moved forward and sometimes back on its promises submission of proposals that materialized their plans.

Initially, the reform was focused on the analysis of two proposed amendments to the Constitution (PECs 45 and 110/2019) and a bill (PL 3887/2020). By the end of 2020, the intention was for the House of Representatives and the Federal Senate to analyze only one main text, consolidated, in the form of a PEC, which would be the result of the work of a Special Joint Committee.

However, the debates related to tax reform gained another dynamic after the election of Arthur Lira (PP/AL) and Rodrigo Pacheco (DEM/MG) to preside, respectively, in the Chamber of Deputies and the Federal Senate, in February/2021. Thus, in May/2021, an agreement was signed between the National Congress and the economic team, for the analysis of the reform by the Legislative Houses. The House of Representatives will be responsible for analyzing the infra-constitutional content of the reform and the Senate will be responsible for deliberating the constitutional portion, in addition to the proposal for the renegotiation of debts (Refis). 


The two proposals authored by the Executive Power were initially sent to the Chamber of Deputies for analysis. The bills propose changes to federal taxes in view of the difficulty of building a majority to approve a broader change involving taxes under the jurisdiction of subnational entities.

BILL (PL) 3887/2020 - CBS (righteous)

Presented in July/2020, it was the first “slice” of the reform proposal prepared by the Executive Branch and sent to the National Congress. The project institutes the Contribution on Goods and Services (CBS). The new tax would result from the unification of PIS and Cofins, with a rate of 12%.

Main points of the proposal:

  1. Maintenance of tax exemption for basic food basket items, on health services funded by the SUS, on public transport services for passengers and for charitable social assistance entities and religious temples.
  2. Exemption from CBS payment for condominiums owned by property owners, philanthropic institutions and foundations, entities representing classes and professional inspection councils, autonomous social services, unions and political parties.
  3. Maintenance of the single-phase regime for the fuel and cigarettes sectors.
  4. Lower CBS rate for banks.


The order of the matter determines the installation of a Special Committee to evaluate the proposal's merits. However, recent manifestations of the President of the Chamber point to the deliberation of the proposal directly in the Plenary of the House in October. The matter is reported by Deputy Luiz Carlos Motta (PL/SP) and the presentation of his report is awaited.

BILL (PL) 2337/2021 - INCOME TAX (righteous)

The second phase of the tax reform proposed by the Executive Branch was presented to the National Congress on June 25, and deals with changes in the income tax for individuals, companies and investments. The bill was processed on an urgent basis and was approved in early September by the plenary of the Chamber of Deputies. The divergence scenario was overcome through massive opposition support and Lira's direct negotiation with parliamentarians.

In the Federal Senate, the matter should be analyzed by the Committee on Economic Affairs (CAE) and the plenary.


In the Senate, the main tax reform proposal in progress is the Proposal for Constitutional Amendment (PEC) 110/2019. The House was also responsible for the initial analysis of legislative proposals regarding the extension of the term for refinancing (Refis) and/or renegotiation of debts of legal entities.


The article proposes the creation of a Tax on Goods and Services (IBS), along the lines of value-added taxes, replacing nine taxes (IPI, IOF, PIS, Pasep, Cofins, CIDE-Fuels, Salary-Education, ICMS, ISS ).

Main points of the proposal:

  1. The IBS would be a state tax, instituted through the National Congress, with the power of initiative basically reserved for representatives of the States and Municipalities.
  2. The IBS rate would be set by a complementary law. Prediction of the existence of a standard rate; Different rates may be set in relation to the standard for certain goods or services. The rate, therefore, could differ, depending on the good or service, but would be applied uniformly throughout the national territory.
  3. PEC 110/2019 authorizes the granting of tax benefits (by complementary law) in food operations, including those intended for animal consumption; medicines; public transport for urban and urban passengers; property, plant and equipment; sanitation; and early childhood education, elementary, secondary and higher education and professional education.
  4. According to the text of the PEC, the tax collection proceeds are shared between the Union, States, Federal District and Municipalities according to the method provided for in the constitutional rules described in the new constitutional text proposed in the Amendment, that is, upon delivery of resources to each federal entity in accordance with the application of percentages provided for in the Constitution on IBS' gross revenue (transfer of the municipal share).
  5. The PEC provides that for one year a "test" contribution of 1% would be charged, with the same tax base as the IBS, and then the transition would last five years, with the current taxes being replaced by the new taxes at the rate of one fifth to year (federative entities cannot change the tax rates to be replaced).
  6. With regard to the transition period, PEC 110 provides for a final period of fifteen years. From the creation of the new taxes, each federative entity (Union, each State, Federal District and each Municipality) would receive a portion of the new tax revenues according to the participation that each one had in the collection of the taxes that are being replaced. After the definitive implementation of the new billing system, expected to last 5 years, the rule described above would be progressively replaced by the destination principle, at the rate of one tenth a year.
  7. Regarding the Selective Tax, PEC 110 provides for the collection of operations with oil and its derivatives, fuels and lubricants of any origin, natural gas, cigarettes and other tobacco products, electricity, telecommunications services referred to in art. 21, XI, of the Federal Constitution, alcoholic and non-alcoholic beverages, and new motor vehicles, land, water and air.


Currently, the proposal is pending deliberation in the opinion of the Committee on Constitution, Justice and Citizenship (CCJ), where it is reported by Senator Roberto Rocha (PSDB/MA). He even presented, in 2019, the first version of his opinion. The full report can be accessed through this link.

As it encompasses state and municipal taxes, the political configuration for voting on the matter is more delicate, as there are differences between states and municipalities about the proposals.

Despite Minister Paulo Guedes resisting a broad reform proposal, involving national and subnational taxes, negotiations have advanced. The PEC is supported by a large part of the private sector and by state managers. There are sectors that even defend that the reform of the Income Tax be addressed within the scope of PEC 110/2019.

The rapporteur has stated that his opinion will follow the same line as the report by Deputy Aguinaldo Ribeiro (PP/PB) presented in the scope of the Joint Committee that was created with the purpose of consolidating a consensus text between the House of Representatives and the Federal Senate for the reform tax. Also in the sense of reforming the tax system, PEC 45/2019 is being processed in the House of Representatives, which converges with the proposal under consideration by the Senate when determining the extinction of taxes on goods and services. The PEC 45, however, should not advance due to political differences between Lira and Aguinaldo Ribeiro, who reported it to the House.


There are two bills pending in the National Congress that deal with the payment of debts to the Union.

O Bill (PL) 4728/2020. authored by Senator Rodrigo Pacheco (DEM/MG), and proposes the modification of the Special Program for Tax Regularization (Pert), with new terms and conditions for the payment of debts with the Union; it's the Complementary Law Project (PLP) 46/2021, authored by Senator Jorginho Mello (PL/SC), which institutes the Long-Term Renegotiation Program of debts to the National Treasury or due under the Simples Nacional (RELP).

Both proposals were approved in early August by the Federal Senate and are now awaiting deliberation in the House of Representatives.

The Government, however, is against the “pure and broad model” of Refis. The intention of the economic team is to work for the project to provide for a tax transaction program, which analyzes the case of each company before renegotiating tax debts. The Ministry of Economy's intention is to work towards adjustments in the content of the proposals and limit the scope of debts incurred during the Covid-19 pandemic.

The perspective is that the projects are analyzed directly in the Plenary of the House of Representatives and voted on quickly.

Last update: 09/23/2021, at 5 pm.

Article published on 08/30/2021.

Wrote by Umbelino Lôbo Team: Luisa Araujo, Partner and Government Relations Manager.


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