*Per Aristotle Moreira Filho
The consumption tax reform is heading for deliberation in the Federal Senate and is hailed by many in our country as a turning point towards a tax system endowed with greater efficiency and rationality. Eliminating the cumulativeness of indirect taxes is a legitimate objective, long defended by specialists and sought after by the industry. Its implementation loses its purpose, however, when it is accompanied by a tax burden on processes and segments that are central to the development of the Brazilian economy. It is necessary to align PEC nº 45/2019 with the strategic interests of the Brazilian productive system, which, under the knowledge-based economy paradigm, means giving adequate treatment to the segments that will ensure the economic dynamism and expansion of the technological capacity desired by the economy and Brazilian society.
Since the 1960s, when Fritz Machlup coined the expression “knowledge-based economy”, the role of technology and information in increasing productivity and, consequently, in the growth and development of national economic systems has been consolidated. Some numbers project this reality: data from the OECD indicate an average of more than 50% for the participation of the knowledge economy in the total gross domestic product of the member countries of the organization; since the late 1990s, in economies such as the US and the UK, investment in intangible, knowledge-based capital has outpaced investment in physical, tangible capital.
It is within this macro universe of the knowledge-based economy that the information technology segment stands out as a central and strategic vector. Covering activities such as the development of software and systems, online platforms, cloud computing, artificial intelligence, data processing and storage, electronic commerce and digital services, the IT segment permeates the entire structure of the economy and the various value chains. It is a segment that not only generates the highest quality and most qualified jobs in a post-industrial economy, but also provides structuring inputs, capable of generating the greatest impacts in raising the productivity of other sectors of the economy.
It is within this context that the impact that the tax reform will have on indirect taxation on the information technology segment must be analyzed.
The recent performance of the segment in the country has already made Brazil fall, in terms of market size, from 9th place in 2020 to 14th in 2022 in the international ranking. Among the six main IT markets in Latin America, Brazil was the only one that reduced its size between 2020 and 2022, from 44% to 36% of share.
If these indicators already raise an alarm about the loss of competitiveness in the sector, the prospect of an increase in the tax burden that brings with it the text of PEC nº 45/2019, as approved by the Federal Chamber, should be taken with more concern. In fact, taking the rate estimated in an IPEA study for the set of new taxation on added value (IBS and CBS), an activity providing IT services would have the current tax burden increased to approximately 28.04%, with today, in the worst case scenario, this load does not exceed 14.25% (ISS and PIS/Cofins); that is, resulting in an impact that at least doubles the tax burden.
The risks for the Brazilian economy become even clearer when considering the choice we are making vis-à-vis the reality of our competitors on the international scene.
China, which is the emerging economy that has been most efficient in the catching up of developed economies and which stands out as a potential leader in the various technology-intensive segments, has recently implemented a broad reform in its taxation on added value and has done so by granting differentiated treatment to the IT segment, consistent with the strategic status it has now attributed to this sector market. While transactions in general are subject to a basic rate of 13%, transactions carried out in the information technology segment are subject to a special rate of 6%, a reduction of more than 50%.
Even in countries where the IT segment does not enjoy specific treatment, via a reduced rate, the tax burden applied is significantly lower than that predicted for the future Brazilian VAT. So, for example, with a rate of 18% in India, 19% in Chile and 16% in Mexico, the VAT applied to the IT sector in these countries, as occurs in the international average, is not only lower than the sum of our IBS and CBS , as it is precisely equivalent to what would be a reduced rate of this future Brazilian VAT.
Finally, the dogma of uniform taxation on added value should not serve as a justification for denying specific tax treatments, consistent with the particularities of certain segments of the economy. The coexistence of different tax rate ranges is commonplace in VAT regimes around the world, the example of the European Union being symbolic, which, taken as a model for Brazilian tax reform, provides for up to three tax rate ranges and, in Annex III of the Directive VAT, an extensive list of goods and services subject to taxation at reduced rates.
Blessed be the consumption tax reform, but one that brings a format compatible with the aspirations of the sector and the Brazilian economy. It is not a case of favored taxation, but rather a treatment that, keeping comparability with international practice, is suitable for a strategic segment for the competitiveness and future prospects of the Brazilian economy and society.
Aristotle Moreira Filho He is a Researcher at Think Tank ABES, Lawyer, Doctor of Law from USP and author of the book “Innovation Law: Taxation, Technology and Development”, published by Quartier Latin (2023).
Notice: The opinion presented in this article is the responsibility of its author and not of ABES - Brazilian Association of Software Companies
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