The impacts of the crisis generated by the covid-19 pandemic on the economy as a result of the isolation measures imposed on the population and the shutdown of business activities led to the adoption of a series of tax measures to mitigate its effects by governments around the world.
In order to guide the actions that could be taken by countries in this scenario, the Organization for Economic Cooperation and Development (OECD) published a report with recommendations to be adopted in each of the four phases of the pandemic identified by the entity, from the initial phase, which involves the suspension of economic activities, a period in which the containment measures remain, with impacts on economic activity, through resumption, in which it would be necessary to stimulate the return to investment and consumption, until the last phase of recovery of public finances after the pandemic. Each of these phases would involve different measures to be taken.
In the early stage of the pandemic, where Brazil is currently, the OECD recognizes the need for immediate responses by governments to mitigate the first impacts suffered and recommends tax measures to provide relief to businesses and families and preserve jobs and economic activity.
An analysis of the international panorama shows that, among the tax measures recommended by the OECD, the one most adopted by countries involves deferment of tax payments. According to the OECD, 75% of the member countries of the entity and of the G-20 have adopted these measures, such as Germany, France, Italy, Spain, and the United States.
In line with the OECD’s recommendations, other tax measures widely adopted by the countries were: extension of the filing of ancillary obligations, flexibility in the payment of outstanding tax debts, a greater possibility for tax recovery, suspension of collection of default charges and penalties for non-payment of taxes, among others.
Several countries have also adopted measures to effectively reduce the tax burden in the early stages of the pandemic to preserve the cash flow of companies. In this context, the most common measures announced by the countries involved reductions in tax rates and payroll contributions, exemptions for priority sectors in the crisis (such as health), and those most impacted by the pandemic (such as tourism and airlines).
In addition, several countries have reduced the rate of their consumption tax (VAT) not only on products related to the fight against the pandemic, such as the United Kingdom, Norway, China, Colombia, and Turkey, among others.
Certain countries have introduced measures to offset tax losses for the year 2020 against profits earned in prior years, such as the United States, New Zealand, Norway, and Poland (carry back). Others have amended legislation to extend the tax loss use period for the year 2020 into the future, as is the case for China and the Slovakia (carry forward).
The rare exception to the rule for countries that have effectively sought to reduce the tax burden of their taxpayers is, for the time being, Saudi Arabia, which has increased the rate of its consumption tax (VAT) from 5% to 15%. The measure was adopted to deal with the impact of the coronavirus and the drop in the barrel price of oil in the world.
Measures adopted by Brazil
The actions of other countries in the tax area ended up influencing Brazil’s attitudes. The federal government, following the trend abroad, implemented the deferral of tax payments, such as social security contributions on payroll and contributions to the Social Integration Program (PIS) and Social Security Financing (Cofins).
In the list of tax measures of a more administrative nature, Brazil decided to postpone the filing of a series of tax returns, suspend the performance of procedural acts before the Brazilian Federal Revenue Office (RFB), extend the expiration date of tax clearance certificates relating to federal tax debts and outstanding tax federal debts (CND), and suspend collection procedures by the Attorney General's Office (PGFN). It also published rules and procedures that must be observed by taxpayers when entering into settlements with the Tax Authorities, in order to extinguish administrative and judicial disputes.
With respect to tax policy measures, Brazil reduced to zero the rate for Tax on Financial Operations (IOF/Credit) in a series of credit operations contracted between April 3 and July 20, 2020, granted a reduction in the rate of the social security contributions due to the S System, and reduced to zero the rate of Import Tax (II) and Tax on Industrialized Products (IPI) for priority products in the fight against and prevention of the coronavirus.
Such tax measures were not as significant, however, as those adopted in other countries and may not reach the level of relief received by companies abroad. Thus far, for example, no reductions in Corporate Income Tax (IRPJ) rates have been granted, as seen in other jurisdictions. The rules on the use of tax losses have not been adjusted either. Although there was a reduction in the rate for contributions due to the S System and deferral in the payment of the employer's social security contribution, there was no reduction in the rate for the employer's social security contribution, as seen in other countries, which may be crucial to maintaining jobs.
In addition, some tax proposals that go against what has been announced by other countries and recommended by the OECD draw attention. For example, while in the international experience the greatest concern of governments is to support the economic activity of companies, and not to increase taxes, in Brazil it is possible to identify in recent months a series of proposals for increasing collection of taxes both at the federal and state levels.
This is the case of the bills presented with the objective of instituting in Brazil the Tax on Large Fortunes (IGF). Currently there are more than 30 bills in the House of Representatives and the Federal Senate seeking the institution of this tax - nine of them were presented during the pandemic.
In recent months, nine bills have also been presented, currently in the House of Representatives and the Federal Senate, aiming the institution of compulsory loans to cover expenses generated by the state of public calamity related to the coronavirus.
Also at the federal level, a bill was presented with the purpose of increasing the Social Contribution on Net Profits (CSLL) rate for financial institutions.
At the state level, in turn, one highlight in São Paulo is Bill No. 250/20, which proposes changes in the Causa Mortis Transfer and Donation Tax (ITCMD) legislation with the objective of increasing the collection of such tax. The bill proposes a series of changes, such as a tax increase based on adoption of progressive rates of up to 8% and a levy on private pension plans and on earnings and income from estates and renunciation of inheritance, currently exempt. In the current scenario, with the significant number of deaths due to covid-19, increasing the tax rate on inheritance seems to us to be a contradiction.
Instead of discussing proposals such as those mentioned above, legislators should be concerned with discussing other relief measures that would further help Brazil reduce the impacts generated by the coronavirus. They could evaluate, for example, flexibilization of the rules on the use of tax losses, decrease in the rate of employer social security contributions, suspension of collection of penalties and interest due to non-payment of taxes, among other measures that would position Brazil alongside the more developed countries in combating the effects of the crisis (and not alongside Saudi Arabia, which increased taxes).