On July 6, after many long days of negotiations, the plenary of the House of Representatives approved the basic text of the tax reform, the Proposal for Constitutional Amendment (PEC) 45/2019. The results of the first round were announced a few minutes before 10 pm, with 382 votes in favor and 118 against, and three abstentions before the opinion of the rapporteur, Deputy Aguinaldo Ribeiro (PP-PB). The text was also approved in the second round and part of the highlights (suggestions for change) will still be evaluated on June 7. After this step, the proposal will go to the Senate.
The PEC received votes in favor from the bloc that includes the Progressive Party, the Democratic Labor Party, the Brazilian Socialist Party, the Brazil Union Party, the Citizenship Party, Avante, the Solidarity Party, and the Patriot Party; the block of Brazilian Democratic Party parties, the Social Democratic Party, the Social Christian Party, the Podemos Party and the Republican Party; the Federation between the Workers’ Party (PT), the Communist Party of Brazil (PCdoB), and the Green Party; the Federation that brings together the Socialism and Liberty Party (PSOL) and the Sustainability Network; and also the leaders of the government and the majority.
The New Party permitted their parliamentary group to vote as they wanted and the Liberal Party (PL), the party of former president Jair Bolsonaro, asked his supporters to reject the text, which showed an isolation of the organization in the middle of the plenary. When it came time to vote, the PL base was divided: the bench, which is the largest in the House and has 99 members, recorded 75 votes against the PEC and 20 in favor of the text. Four members of the party were absent in the vote.
The result of the first round of the PEC reflects the configuration of forces that had been announced a few hours earlier, when parliamentarians voted on a request for postponement of the vote submitted by the opposition. On that occasion, opponents ended up losing by a score of 357 votes against 133 in favor. Three congress members abstained.
The text of the PEC consists basically in creating two Value Added Taxes (VATs), one of them being the Tax on Goods and Services (IBS), of national scope, which should replace the Tax on Circulation of Goods and Services (ICMS) of the states and the Service Tax (ISS) of the municipalities. The other would be the Contribution on Goods and Services (CBS), which unifies three federal taxes: Tax on Industrialized Products (IPI), Social Integration Program (PIS) and Contribution to Finance Social Security (Cofins).
Text of the reform
The text approved by the plenary is the third version of the opinion of the rapporteur, Aguinaldo Ribeiro (PP-PB), which was delivered on Thursday, after a series of negotiations with different economic segments and parties. The report brought some changes in relation to the last version, among them the expansion from 50% to 60% in the discount to be applied on the VAT levied on different services and products.
The list, which now also includes journalism and audiovisual activities, includes education, health, public transportation, medicines and products related to menstrual health, devices for the handicapped, and agricultural products and supplies. Another change was the expansion of the list of activities that will receive differentiated treatment by not having to pay the new VAT. Previously, the list included fuel, cooperatives and the financial sector, but now also includes hotel services, amusement parks and theme parks, restaurants and regional aviation.
Ribeiro’s new report also consolidated other changes, among them the changes in the section that deals with the IBS Federative Council, a decision-making body on tax issues, which will have an alternating presidency and 27 members. Each one of them will represent a state of the Federation, which was not specified in the previous version of the opinion. There will also be 27 representatives of the Brazilian municipalities, 14 of them elected among all the 5,560 cities in the country and another 13 based on population.
Discussion
The text began to be officially discussed by the plenary of the House on the night of June 5, after a series of political alliances that resulted in support considered essential for the PEC to move forward. Mayors, governors, entities representing different sectors and even the Federation of Industries of the State of São Paulo (Fiesp), one of the main arms of the liberal right in the economy, expressed their agreement with the proposal.
Throughout this Thursday, the PEC was debated by members of all parties on the House floor. More than 80 parliamentarians commented on the text. Among the highlights of the speeches was the celebration of the 60% reduction in the VAT rate on products and services that have benefited from this part of the reform.
In the case of the benefit for menstrual hygiene items, this was demanded by segments such as the Taxation and Gender Research Group, from the Tax Law Center of the Getúlio Vargas Foundation (FGV), which last week sent a letter to the House suggesting changes to the text of the PEC that could combat racial and gender inequalities in the tax system. “This is the role of parliament: to make room for the voices of the most vulnerable to be heard,” commented Deputy Tabata Amaral in the plenary.
Congressman Renildo Calheiros, one of the government’s deputy leaders in the House, said that this Thursday’s session represents “a historic moment” by putting an end to a decades-long journey of attempts to sanction a PEC of this nature. “The worst thing we can do is not approve the tax reform. This is the worst solution, even if not all the issues we would like to change are present in the project. But this does not invalidate us from approving the current project because it means solving part of the problem. I believe that this maturity takes care of the House of Representatives today.
History of the PEC
Different tax reform proposals have been discussed in the federal legislature over the past three decades, but only PEC 45 got more oxygen and managed to overcome the main disagreements. The text sanctioned by the plenary on Thursday was initially approved by the Constitution and Justice Commission (CCJ) of the House in May 2019 and became the subject of a special commission in the same year.
The work of the collegiate, however, was paralyzed two years later, when all the regimental deadlines had already been broken without the PEC having been approved by the group. Subsequently, the proposal was taken straight to the plenary and came back to the fore this first semester of 2023, with the support of the Lula government and allies.
This article was translated from Portuguese and originally published on Brasil de Fato.
