Tax Reform of 2023: Discover the Impactful Changes

Find out how the 2023 Tax Reform will affect your company. Understand the new deadlines, taxes and economic impacts.

Recently approved, the Tax Reform in Brazil is a milestone after three decades of discussions. Firstly, it aims simplify consumption taxation, maintaining the general tax burden, but making the system more efficient and economically viable for companies.

Furthermore, this article offers an overview of tax changes, addressing new taxes, extinctions and transition deadlines.

The Tax Reform enacts the Constitutional Amendment 132/2023, brings a significant change in the lives of Brazilians, especially in the practices of purchasing products and services.

The Creation of Dual VAT (Value Added Tax)

To proposal unifies five taxes existing in two different VATs:

• The Contribution on Goods and Services (CBS), of federal competence, replacing PIS, COFINS and IPI.
• The Tax on Goods and Services (IBS), unifying ICMS for States and ISS for Municipalities, with shared management between the two entities.

Changes in the Tax reform for Companies:

Tax Reform aims to change taxation from production to consumption, thus ending the fiscal war between States.

However, the VAT rate has yet to be defined, but is estimated at around 27,5%, the highest in the world, in addition to heavy burden on the services sector. Check out the changes:

• Specific sectors and discounted rates:

The reform provides for a tax discount for certain sectors and products, including public transport services, medical devices, medicines and non-profit innovation, science and technology activities. Self-employed professionals submitted to a federal council will also have a 30% discount.

• Changes in Income and Wealth Taxation:

The reform promoted changes in property taxation, including the progressive collection of IPVA for luxury vehicles and progressive ITCMD for inheritances and donations.

• Efficiency and Bureaucracy Reduction Benefits:

Therefore, tax reform should reduce bureaucracy, saving companies time and resources on complex tax obligations.

Furthermore, a national basic food basket with 100% discount on the rate and a Selective Tax, known as the "sin tax", on goods and services that are harmful to health and the environment, such as cigarettes and alcoholic beverages.

Within 180 days, the Executive will present projects to Congress to regulate the new tax structure. There are three main projects:

• What regulates new taxes, including the transition and how revenue is distributed between states and municipalities;
• Which creates the IBS Management Committee (for states and municipalities); It is
• What regulates the selective tax.

WHEN WILL THE TRANSITION OCCUR?

Therefore, the transition will begin in 2026 and will only be completed in 2033, with the total replacement of the current system with the new one.

This new legislation details the new system and, consequently, the Tax Reform aims at a more efficient Brazilian tax system. The history of tax disputes and exceptions in the project generate uncertainty among the Brazilian business community.

Therefore, it is vital to monitor the reform and assess its impact on business to ensure opportunities and a beneficial transition.