2023-12-23 13:10:35
With tax, small businesses can pay tax separately
Enacted on Tuesday (Dec 19, 2023), the consumption tax reform may motivate companies that are currently in Simples Nacional to adopt a hybrid taxation system, in which some taxes will be collected separately. The reason: to maintain competitiveness in the market.
Small businesses that opt for the hybrid system will be able to gain “discounts” taxes charged in the previous stage of production. It works as a kind of cashback. In technical terms, it is called “tax credit”.
Here is an example for a set rate of 27.5%:
Read more about the explanation below:
1. small industry produces drinks with a selling price of R$40
tax is R$11 (27.5% of the total); The cost that appears on the invoice is R$51.
2. distributor buys the drink and resells the product to a grocery store for R$80
the tax is R$22 (27.5% of the total); only R$11 is charged – equivalent to the original R$22 subtracted by the R$11 in step 1; the product is sold at R$91.
3. grocery store sells the drink to the consumer for R$120
the tax rate is R$33; but, the sum of the total tax that was charged in the previous chains is subtracted (R$ 22); In the end, the customer will pay R$131.
Small businesses that do not adhere to the hybrid system may be at a disadvantage. The tax credit system tends to make the product cheaper and provide more transparency to the consumer.
Tax collection will no longer be cumulative throughout the production chain in the VAT model. This avoids a “Cascade effect” in taxation. The analysis is by Guilherme Mercês, director of Economy and Innovation at CNC (National Confederation of Commerce in Goods, Services and Tourism).
The expert states that the cumulative effect is one of the main tax insecurities in Brazil’s current taxation model.
WHAT ARE THE OPTIONS
Experts consulted by Entrepreneurial Power stated that the reform will stipulate two possibilities for small businesses:
stay not Simple National – the company pays taxes using a simplified guide. The collection of taxes on services and income is already included;
migrate to the hybrid system – the company starts to produce full credits outside of Simples Nacional when collecting VAT (read which taxes will be unified below). Taxes that are outside the new tax (IRPJ and CSLL) must continue to be charged using the simplified guide. It’s not a certainty, but it’s what is expected in the logic of the proposal, according to Thais Veiga Shingai, researcher at Insper’s Tax Research Center.
Brazil has 5 taxes on consumption that will be unified by VAT:
IPI (Taxes over industrialized products);
PIS (Social integration program);
Cofins (Contribution to Social Security Financing);
ICMS (Tax on Circulation of Goods and Services);
ISS (Tax over services).
The idea is to unify taxes into 2 VATs:
CBS – will be the merger of IPI, PIS and Cofins. It will be managed by the Union (federal government);
IBS – unifies ICMS and ISS. It will be managed shared between states and municipalities.
The reform will be implemented by 2033. This is the period that businesses will have to study the viability of the system for their company.
WHICH SYSTEM TO CHOOSE
Fenacon’s legislative director, Diogo Chamun, states that the hybrid model can make some businesses more competitive. On the other hand, they will have to deal with more bureaucracy, according to Leonardo Roesler, a lawyer specializing in tax law.
Roesler says that the analysis of the 2 scenarios proposed by the tax reform is crucial for small business decision-making. The company will have to carry out a detailed survey of operations, customer profile and financial projections to determine which scenario is most favorable.
BENEFIT OF STAYING IN SIMPLES
Companies that provide direct services to individuals and have the majority of expenses linked to personnel tend to benefit from continuing under Simples Nacional because of the reduced rates applied to the activity and the administrative facilities provided by the regime.
The lawyer used a language school as an example:
revenue – the majority comes from monthly fees paid by students, the end consumers;
expenses – does not have many inputs or raw materials, since the main focus is the provision of services. The company spends much more on employees, such as teachers.
BENEFIT OF THE HYBRID SYSTEM
The hybrid system tends to be more advantageous for companies that work with long production chains. The return of the tax credit will benefit them.
Leonardo gave the example of a small technology company, which generally has as a client a large company that is not in Simples Nacional. You “discounts” make the venture more attractive.
The same goes for small suppliers of parts or products for the industry, as customers may prefer to buy items from those who can produce “credit” in the production chain.
UNDERSTAND THE REFORM
O Poder360 wrote a report that explains in the smallest details what it is and what the changes established by the consumption tax reform will be. Read here.
Below are infographics that summarize the points of the reform:
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