Programa EUROsociAL Fiscalidade Estratégias Fiscais Ligadas à Coesão Social Encontro de Especialistas em Política Tributára – Receita Federal e União Européia PIS/COFINS and IPI The Federal Consumption Taxes Jefferson José Rodrigues Chief of Economics Studies Secretaria da Receita Federal Brasília – Brazil November 20-23, 2006 General Aspects Brazilian Tax System Consumption Federal IPI PIS/Cofins Cide Comb. Income Federal IRPF IRPJ CSLL Social Sec. Federal INSS Others Federal Rural State Vehicle State ICMS Property Local Urban Local ISS % GDP 16.4 8.1 6.9 1.0 5.0 % Tax Burden 44.0 21.6 18.4 2.8 13.2 Receita Federal PIS/COFINS Brief history 9 The Social Integration Program (PIS) was created in 1970 and had incidence on company's turnover at the rate of 0.65%. 9 The Contribution for the Financing of Social Security (Cofins) was created in 1982 and had incidence on company's turnover at the rate of 0.5%. Gradually, the rate was increased until achieving 3%, in 1999. 9 Along the years, there was a trend to converge the tax bases of the two contributions. Consequently, nowadays the tax rates are almost a simple addition. Receita Federal PIS/COFINS Features until 2003 9 Until 2003, the PIS/Cofins were contributions with incidence on company's turnover. 9 The incidence was cumulative at total rate of 3.65%, with no incidence on imports and exports. 9 The financial sector was charged at the rate of 4.65% on the spread (the difference between the financial revenues and the interest rate a bank pays on deposits). 9 There were few exemptions, and some economic activities were charge in a single stage. Receita Federal PIS/COFINS Features after 2004 9 Under the present rules, PIS/Cofins are hybrid contributions: for some economic activities, they are cumulative at total rate of 3.65%. For others, they are non-cumulative at total rate of 9.25%. 9 When they are non-cumulative, the tax basis is the difference between gross revenue and total deductible purchases. 9 Imports are charge at total rate of 9.25% and exports are exempt. 9 The financial sector is still charged at the rate of 4.65% on the spread (the difference between the financial revenues and the interest rate a bank pays on deposits). Receita Federal PIS/COFINS Features after 2004 9 There are some exemptions, like capital goods and basic foods . There are more economic activities charged in a single stage. 9 In some cases, the buyer of a service must withhold at source the PIS/Cofins 9 The collection of PIS/Cofins is not shared with States and Municipalities. 9 The collection is directed to financing the social security system (health care, pension system and social assistance). Receita Federal PIS/COFINS PIS/Cofins Collection * 6,0% Tax Collection (% of GDP) 5,0% 4,0% 1.65% (1983) 3,0% 5.40% (2005) 2,0% 1,0% * Pasep included. 0,0% 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Receita Federal PIS/COFINS PIS/Cofins Collection * 40% 35% % of Consumption Collection Relative Share (%) 30% 25% 20% 15% % of Federal Revenue Taxes 10% 5% * Pasep included. 0% 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Receita Federal IPI Basic features 9 The Tax on Industrialized Products (IPI) replaced, in 1967, the federal consumption tax. 9 The IPI is a value-added tax only charged on the manufacturing stages (it is not charged on services). 9 The rates are defined under the harmonized system (several different brackets). 9 According to a constitutional rule, the IPI shall be selective, based on the essentiality of the product. 9 The highest brackets are levied on tobacco, alcoholic drinks, vehicles and luxury goods. Receita Federal IPI Basic features 9 Is levied on imports and is not levied on exports. 9 57% of the collection is shared with States and Municipalities. 9 In the last few years, there has been a gradual exemption of capital goods. 9 It is an important tool of industrial policy of the federal government. The brackets may be changed by the executive power. 9 There are many programs of regional development based on the exemption of IPI (e.g. Zona Franca de Manaus). Receita Federal IPI IPI Collection 3,0% Tax Collection (% of GDP) 2,5% 2,0% 2.52% (1983) 1,5% 1,0% 1.29% 0,5% (2005) 0,0% 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Receita Federal IPI IPI Collection 30% % of Consumption Collection Relative Share (%) 25% 20% 15% 10% % of Federal Revenue Taxes 5% 0% 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Receita Federal PIS/COFINS + IPI Tax Collection 8,0% Tax Collection (% of GDP) 7,0% 6,0% 4.18% (1983) 5,0% 4,0% 3,0% 6.70% (2005) 2,0% 1,0% 0,0% 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Receita Federal PIS/COFINS + IPI PIS/Cofins + IPI Collection * 50% 45% % of Consumption Collection Relative Share (%) 40% 35% 30% 25% 20% 15% % of Federal Revenue Taxes 10% 5% * Pasep included. 0% 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Receita Federal CIDE - Combustíveis Basic features 9 The Economic Contribution on Fuel (CIDE Combustíveis) replaced, in 2002, a non-tax government revenue that was charged on fossil fuel and directed to a fund used do balance changes in the international price of oil. 9 It is charged in the refinery. The tax rate is specific (a fixed amount per liter of fuel). 9 The amount of the specific contribution is variable, according to the type of fuel. Receita Federal CIDE Combustíveis Tax Collection 0,6% Tax Collection (% of GDP) 0,5% 0.56% (2002) 0,4% 0,3% 0,2% 0.39% (2005) 0,1% 0,0% 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Receita Federal Programa EUROsociAL Fiscalidade Estratégias Fiscais Ligadas à Coesão Social Encontro de Especialistas em Política Tributára – Receita Federal e União Européia PIS/COFINS and IPI The Federal Consumption Taxes Jefferson José Rodrigues Chief of Economics Studies Secretaria da Receita Federal Brasília – Brazil November 20-23, 2006