Jefferson José Rodrigues Chief of Economics Studies Secretaria da Receita Federal Brasília – Brazil November 20-23, 2006 PIS/COFINS and IPI Encontro de Especialistas em Política Tributára – Receita Federal e União Européia Programa EUROsociAL Fiscalidade Estratégias Fiscais Ligadas à Coesão Social The Federal Consumption Taxes

Receita Federal Brazilian Tax System ConsumptionIncomeSocial Sec.PropertyOthers  Federal IPI PIS/Cofins Cide Comb.  State ICMS  Local ISS  Federal IRPF IRPJ CSLL  Federal INSS  Federal Rural  State Vehicle  Local Urban % GDP % Tax Burden General Aspects

Receita Federal Brief history The Social Integration Program (PIS) was created in 1970 and had incidence on company's turnover at the rate of 0.65%. 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 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. PIS/COFINS

Receita Federal Features until 2003 Until 2003, the PIS/Cofins were contributions with incidence on company's turnover. The incidence was cumulative at total rate of 3.65%, with no incidence on imports and exports. 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). There were few exemptions, and some economic activities were charge in a single stage. PIS/COFINS

Receita Federal Features after 2004 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%. When they are non-cumulative, the tax basis is the difference between gross revenue and total deductible purchases. Imports are charge at total rate of 9.25% and exports are exempt. 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). PIS/COFINS

Receita Federal Features after 2004 There are some exemptions, like capital goods and basic foods. There are more economic activities charged in a single stage. In some cases, the buyer of a service must withhold at source the PIS/Cofins The collection of PIS/Cofins is not shared with States and Municipalities. The collection is directed to financing the social security system (health care, pension system and social assistance). PIS/COFINS

Receita Federal PIS/Cofins Collection * Tax Collection (% of GDP) * Pasep included. PIS/COFINS 1.65% (1983) 5.40% (2005)

Receita Federal PIS/Cofins Collection * Relative Share (%) PIS/COFINS * Pasep included. % of Federal Revenue Taxes % of Consumption Collection

Receita Federal Basic features The Tax on Industrialized Products (IPI) replaced, in 1967, the federal consumption tax. The IPI is a value-added tax only charged on the manufacturing stages (it is not charged on services). The rates are defined under the harmonized system (several different brackets). According to a constitutional rule, the IPI shall be selective, based on the essentiality of the product. The highest brackets are levied on tobacco, alcoholic drinks, vehicles and luxury goods. IPI

Receita Federal Basic features Is levied on imports and is not levied on exports. 57% of the collection is shared with States and Municipalities. In the last few years, there has been a gradual exemption of capital goods. It is an important tool of industrial policy of the federal government. The brackets may be changed by the executive power. There are many programs of regional development based on the exemption of IPI (e.g. Zona Franca de Manaus). IPI

Receita Federal IPI Collection Tax Collection (% of GDP) IPI 2.52% (1983) 1.29% (2005)

Receita Federal IPI Collection Relative Share (%) IPI % of Federal Revenue Taxes % of Consumption Collection

Receita Federal Tax Collection Tax Collection (% of GDP) PIS/COFINS + IPI 4.18% (1983) 6.70% (2005)

Receita Federal PIS/Cofins + IPI Collection * Relative Share (%) PIS/COFINS + IPI * Pasep included. % of Federal Revenue Taxes % of Consumption Collection

Receita Federal Basic features 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. It is charged in the refinery. The tax rate is specific (a fixed amount per liter of fuel). The amount of the specific contribution is variable, according to the type of fuel. CIDE - Combustíveis

Receita Federal Tax Collection Tax Collection (% of GDP) CIDE Combustíveis 0.56% (2002) 0.39% (2005)

Secretaria da Receita Federal PIS/COFINS and IPI Brasília – Brazil November 20-23, 2006 Programa EUROsociAL Fiscalidade Estratégias Fiscais Ligadas à Coesão Social Encontro de Especialistas em Política Tributára – Receita Federal e União Européia Jefferson José Rodrigues Chief of Economics Studies The Federal Consumption Taxes