We need to talk about Tax Reform
Posted: Sat Feb 01, 2025 4:35 am
As we saw last week, Minister Paulo Guedes and his economic team delivered the supposed first part of their vision for Tax Reform , called Plano Mais Brasil , after more than a year of initial deadline.
You've probably already read about the impacts of the reform on sectors such as the service sector, but what you probably haven't read is about the serious impacts on your retirement and the legal flaws of the Mais Brasil Plan.
Well, a vice that is not exclusive to the economic team is treating the PIS and COFINS taxes as if they were a single institute and that their union would be as simple as stacking LEGO pieces.
In fact, PIS was created at least a decade before COFINS with the aim of solving two problems in Brazil in the 1970s, which was the possibility for low-income workers to earn part of their employer's profits and the cost of unemployment insurance.
With PIS, low-income private sector workers would be entitled to a 14th salary, equivalent to the minimum wage. The effects of the tax are obvious, because with the extra income, the worker gambling data europe uses the money and moves the market in a virtuous circle, not to mention that the funding of unemployment benefits - being covered by such a contribution - no longer takes money away from what was collected in taxes, allowing the State to spend in other sectors.
On the other hand, COFINS originates from an evolution of the FINSOCIAL contribution made during the Collor government with the aim of solving the social security deficit. That's right, dear reader, your eyes did not deceive you, COFINS's mission is to address that much talked about deficit that justified yet another constitutional reform of the social security system, which had, among other consequences, the reduction of benefits such as the survivor's pension and increased the minimum age for you to retire.
That said, we don't need to be excellent mathematicians to understand that the extinction of COFINS will imply an exponential growth of the deficit, indirectly leading to a situation of bankruptcy of the system and forcing Brazilians to seek help through private pension plans, which are more expensive and less comprehensive than the public model, unfortunately, for the overwhelming majority of the population.
From a legal point of view, my dear reader, these errors are so childish that my undergraduate students would not make them in their first Tax Law exam. Let's list the 3 main formal errors that make the project unfeasible in its current form. They are:
1. An ordinary bill was presented (Bill No. 3887/2020), when the Constitution requires a complementary bill. In fact, the matter has been settled in the Supreme Federal Court (STF) since the end of the 1990s with the judgment of ADI 1,103 and more recently, in 2014, with the judgment in General Repercussion of RE 595,838.
In other words, every basic tax manual explains the need for a supplementary law, so why did Minister Paulo Guedes present the project in this way when there are already two Proposed Amendments to the Constitution (PECs)?
I will owe you the answer, as only the minister and his team will be able to answer us.
2. The Project creates a hypothesis of immunity in its article 21, when immunity is an exclusive benefit of the constitutional text, requiring the use of the aforementioned PEC for this purpose.
3. As stated above, the bill combines the collection of PIS and COFINS into a tax called Social Contribution on Operations with Goods and Services – CBS, without mentioning how the social security and unemployment insurance will be funded.
In more than 130 articles, only one, article 125, addresses in a very generic way that the funding will be maintained, without specifying in what form, whether it will be full or not, in complete disregard of what is required by the Constitution in its art. 194, item VI.
As it stands, the proposal is likely to fail, as Brazil cannot bear any more setbacks, especially in the tax and social security areas, as seen in the protests taking place in Chile even in times of pandemic.
You've probably already read about the impacts of the reform on sectors such as the service sector, but what you probably haven't read is about the serious impacts on your retirement and the legal flaws of the Mais Brasil Plan.
Well, a vice that is not exclusive to the economic team is treating the PIS and COFINS taxes as if they were a single institute and that their union would be as simple as stacking LEGO pieces.
In fact, PIS was created at least a decade before COFINS with the aim of solving two problems in Brazil in the 1970s, which was the possibility for low-income workers to earn part of their employer's profits and the cost of unemployment insurance.
With PIS, low-income private sector workers would be entitled to a 14th salary, equivalent to the minimum wage. The effects of the tax are obvious, because with the extra income, the worker gambling data europe uses the money and moves the market in a virtuous circle, not to mention that the funding of unemployment benefits - being covered by such a contribution - no longer takes money away from what was collected in taxes, allowing the State to spend in other sectors.
On the other hand, COFINS originates from an evolution of the FINSOCIAL contribution made during the Collor government with the aim of solving the social security deficit. That's right, dear reader, your eyes did not deceive you, COFINS's mission is to address that much talked about deficit that justified yet another constitutional reform of the social security system, which had, among other consequences, the reduction of benefits such as the survivor's pension and increased the minimum age for you to retire.
That said, we don't need to be excellent mathematicians to understand that the extinction of COFINS will imply an exponential growth of the deficit, indirectly leading to a situation of bankruptcy of the system and forcing Brazilians to seek help through private pension plans, which are more expensive and less comprehensive than the public model, unfortunately, for the overwhelming majority of the population.
From a legal point of view, my dear reader, these errors are so childish that my undergraduate students would not make them in their first Tax Law exam. Let's list the 3 main formal errors that make the project unfeasible in its current form. They are:
1. An ordinary bill was presented (Bill No. 3887/2020), when the Constitution requires a complementary bill. In fact, the matter has been settled in the Supreme Federal Court (STF) since the end of the 1990s with the judgment of ADI 1,103 and more recently, in 2014, with the judgment in General Repercussion of RE 595,838.
In other words, every basic tax manual explains the need for a supplementary law, so why did Minister Paulo Guedes present the project in this way when there are already two Proposed Amendments to the Constitution (PECs)?
I will owe you the answer, as only the minister and his team will be able to answer us.
2. The Project creates a hypothesis of immunity in its article 21, when immunity is an exclusive benefit of the constitutional text, requiring the use of the aforementioned PEC for this purpose.
3. As stated above, the bill combines the collection of PIS and COFINS into a tax called Social Contribution on Operations with Goods and Services – CBS, without mentioning how the social security and unemployment insurance will be funded.
In more than 130 articles, only one, article 125, addresses in a very generic way that the funding will be maintained, without specifying in what form, whether it will be full or not, in complete disregard of what is required by the Constitution in its art. 194, item VI.
As it stands, the proposal is likely to fail, as Brazil cannot bear any more setbacks, especially in the tax and social security areas, as seen in the protests taking place in Chile even in times of pandemic.