Originally published in the June 8 edition of World Tax Daily (Copyrights Tax Analysts)
Since late April, Brazil’s Chamber of Deputies has been reviewing a tax reform plan that would introduce environmental components into Brazilian tax policy and the guidelines established by the Brazilian Constitution.
Constitutional Amendment Project (Projeto de Emenda Constitucional, or PEC) 353 was presented to Brazil’s Chamber of Deputies on April 24 by Deputy Roberto Rocha. It adds provisions to the Brazilian Constitution that allow tax reductions for environmentally friendly actions by taxpayers.
PEC 353 adds paragraph 4-A to article 149 of the Constitution, which deals with social contributions such as royalty (CIDE) and fuel taxes (CIDE-fuel). The new paragraph provides that the rates for the contribution will be established based on the taxpayer’s acts of social responsibility.
Although the provision would require further regulation from Congress and the executive branch, it would enable taxpayers that take measures to protect the environment to reduce some of their social contributions.
PEC 353 also adds three activities to the tax immunity clause of article 150, Item VI of the Constitution. A tax immunity is a tax exemption granted by the Constitution that cannot be revoked by legislation other than a constitutional amendment. According to PEC 353, the following services and products cannot be subject to any tax:
environmental sanitation services;
recycled materials; and
antipollution machinery and equipment.
That means those products and services could not be subject to any tax at any level — federal, state, or local. Sanitation services, for instance, could not be taxed by local service tax, while the sale of recycled materials or antipollution machinery, equipment, and devices could not be taxed by the federal excise tax (IPI) or the state VAT (ICMS).
The tax immunity does not extend to the profits of companies performing those activities, which means companies would continue to pay corporate income tax and the 9 percent social contribution on net income.
Also, the tax immunity extends only to true taxes, which excludes the so-called social contributions, such as the Program for Social Integration contribution (P.I.S.) and the Contribution for the Financing of Social Security (COFINS).
PEC 353 also adds an environmental component to the rural property ownership tax (imposto territorial rural, or ITR). It changes article 153, paragraph 4 of the Constitution to state that ITR rates will be determined in a way that promotes respect of the environmental aspects of the property.
Although it is still vague, that provision could enable an ITR reduction for rural properties used for environmentally friendly activities, such as those that generate carbon credits. It also could reduce deforestation of the rain forest in northern Brazil.
PEC 353 adds a similar provision to other taxes with paragraph 5-A of article 153 of the Constitution, which states that rates of other taxes considered under the article (import and export taxes, income tax, federal excise tax, and financial transaction tax) will also be established based on the environmental aspects of the taxpayer’s activities. Clauses like these are not only ambiguous, but could be discriminatory. Activities with a significant environmental impact could be subject to significant tax increases despite environmental protection measures taken to mitigate that impact.
PEC 353 also changes the state vehicle ownership tax (IPVA) detailed in article 155, Item III of the Constitution by stating that the IPVA will have varying rates according to the vehicle’s emission levels and energy consumption. Because owners pay IPVA of up to 4 percent of the vehicle’s market price per year, any IPVA reduction is not only welcome but should also motivate owners to seek less polluting vehicles.
PEC 353 changes the urban property ownership tax (imposto predial e Territorial urbano, or IPTU) detailed in article 156, paragraph 1 of the Constitution to state that IPTU rates will also take into account respect for the environment.
PEC 353 alters two Constitutional provisions (articles 158 and 161) regarding the sharing of public revenue by states and municipalities. The provisions seek to encourage states and municipalities to adopt environmental protection policies in order to increase their participation in federal funds.
- Conclusion
Although proposals like PEC 353 benefit Brazilian society, some clauses, as proposed, may allow legislators to increase taxes on activities they consider harmful to the environment, regardless of the measures taxpayers adopt to mitigate any environmental damages.
Rocha said he studied similar proposals implemented worldwide, particularly in the U.K., Germany, Norway, Sweden, Finland, Denmark, the Netherlands, and Switzerland. He said many countries had found that the tax burden could be redistributed to increase the taxation of polluting activities and grant tax relief for investments, payroll, and income.
PEC 353 now goes to the House Commission of Constitution and Justice. If it is approved, a special House commission will be formed to deliver an opinion on it before it is submitted for a vote by the full House of Delegates.
David Roberto R. Soares da Silva