89 Tax Reform, after its enactment in December 2023, will continue to be one of the main tax agendas in 2024. And beyond that, this year needs to be one of preparation for companies during the transition period for the new framework, which will take place from 2026 to 2033. In addition to unification of the taxes currently levied in Brazil, Tax Reform proposes more transparency in the country’s fiscal regulation and reduced complexity of the system on the consumption of goods and services. It is expected that from this point on, reform will boost the Brazilian economy, with GDP growth estimated at more than 10% over a decade. The future is decided now - In 2024, the regulations that will regulate reform will be published. Several points will become clearer for companies to organize themselves and make the best decisions for the future. Among the most relevant points are: • Definition of the products in the national basic food basket, which will have zero tax • How the Selective Tax (IS) will work, which will be levied on products that are harmful to health and the environment. These measures, among others, will be defined through complementary laws, in a process that will require cooperation between the government and Congress. We will have to be attentive to every move. Tax Group closely maps the points of greatest attention and is able to find customized solutions for each business model and size. The main points of reform involving risks and benefits: Points of attention 1. Increased tax burden for some sectors: Certain segments of the economy, such as services, may face an increase in the tax burden due to the unification of five taxes into two 2. Coexistence of two tax systems: over the transition period, which will last seven years, two tax systems will coexist. This will increase the costs of complying with tax obligations for businesses, who will have to deal with the rules of the old system while adapting to the new one. 3. Monetization of accrued credit balances: The need to quickly monetize accrued credit balances from taxes under the current regime could lead to financial challenges for businesses. 4. Impact on companies’ operating costs: with the need to configure and organize the new tax regulations in the companies’ systems, there will be an increase in operating costs. Benefits 1. Simplification of the tax chain: reform should simplify tax processes, reducing the time and money spent by companies; 2. Increased competitiveness and economic growth: with simplification, economic sectors can gain competitiveness in the international market, boosting the Brazilian economy; 3. Reduction of business costs: currently, 1.2% of companies’ costs are related to the payment of taxes, including expenses on software, advisors, audits and human resources; 4. Legal certainty: the clarity and predictability of tax rules provide greater legal certainty for companies and investors; 5. Job creation and income generation: A more favorable tax environment could contribute to job creation and income growth. As we move into 2024, it is essential to maintain a clear focus on the benefits that Tax Reform can bring, while also determinedly addressing the challenges. One way to prepare for the unpredictability brought about by the reform is to have a serious tax consultancy, attentive to every nuance of the new regulation to look for opportunities, and alert to the challenges that will arise. Tax Reform: do we need to worry about it now? Changes in legislation always bring opportunities, and risks By Luis Wulff, CEO and founding partner of Tax Group
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