Brazilian finance minister Haddad announces US$47.5 billion package for primary surplus in 2023

The Minister of Finance, Fernando Haddad, has just announced a R$242.7 (US$47.5) billion package of tax measures to make the government record a primary surplus in 2023.

The measures involve reversing tax breaks, changes in the Administrative Council of Tax Appeals (Carf), and a new special renegotiation of debts called the Zero Litigation Program.

According to the minister, the changes may make the Central Government (National Treasury, Social Security, and Central Bank) register a primary surplus of R$ 11.13 (US$2.1) billion in 2023, against a deficit forecast of R$ 231.55 billion established in this year’s General Federal Budget.

According to Haddad, the package includes measures and revenue re-estimates that will raise revenues by R$196.68 billion and reduce expenses by R$50 billion.

REVENUE INCREASE

On the revenue side, the government expects an increase of R$36.4 billion in cash in relation to what was originally foreseen in the 2023 Budget.

In addition, there will be R$73 billion in extraordinary revenues, such as the changes that intend to speed up Carf processes and break even in favor of the government (R$35 billion), incentives for spontaneous denouncements of tax evasion (R$15 billion) and the use of resources stopped in an old PIS/Pasep fund (R$23 billion), which had been authorized by the Transition Constitutional Amendment.

The government will also promote measures to increase tax collection permanently, which should yield R$83.28 billion this year alone.

Among the measures are the end of tax exemptions in the Social Integration Program (PIS) and the Contribution for the Financing of Social Security (Cofins), and the change in the use of credits from the state-level VAT tax (ICMS), which was incorporated into the PIS/Cofins.

In relation to the end of the tax breaks, the government forecasts that R$28.88 billion will flow into the public coffers from the end of the PIS/Cofins zero rate on gasoline and ethanol as of March.

There will also be R$4.4 billion from the reversal of the PIS/Cofins exoneration on financial revenues of large companies, decided by the former vice-president of the Republic Hamilton Mourão at the end of last year. As of April, the taxes will return to the old rates.

ICMS CREDITS

About ICMS, in 2017, the Federal Supreme Court (STF) excluded the tax from the calculation basis of PIS/Cofins but defined the measure’s scope only at the end of 2021.

However, a controversy persisted over whether the calculation of PIS/Cofins tax credits should include or remove the ICMS.

The tax credits represent overpaid taxes along the production chain that can be returned to the companies or used to offset the payment of other taxes.

The government has defined that the PIS/Cofins credits will not be calculated on the ICMS, only on the calculation basis determined by the STF.

This will result in more revenue for the Federal Government.

SPENDING REDUCTION

On the expenditure side, the measure provides for a reduction in spending of R$50 billion.

Of this total, R$25 billion will come from the permanent review of contracts and programs, which will be carried out by the Ministry of Planning, and R$25 billion will come from commitments (authorization to execute) below what was authorized in the 2023 Budget.

CARF

In relation to Carf, the body that judges administrative appeals from taxpayers who owe the Federal Revenue, the most significant change will occur in the voting system.

The government will resume the casting vote of the Treasury, already recommended by the Federal Audit Court (TCU), in the judgment of tax disputes.

This measure increases the chances of the Revenue Department winning the cases, improving the government’s cash flow.

The government will also introduce the Zero Litigation Program, which will work in the same way as the traditional Refis and provides for the renegotiation of debts with the Federal Government under special conditions.

Individuals, micro and small companies with debts under 60 minimum wages will be able to obtain discounts of 40% to 50% on the total value of the debt, with up to 12 months to pay.

Companies that owe more than 60 minimum wages will have a 100% discount on fines and interest and the possibility of using losses from previous years to reduce 52% to 70% of the debt.

According to the Ministry of Finance, this will only apply to debts considered irrecoverable and challenging to recover.

There will also be an end to ex officio appeals within Carf for amounts below R$15 million.

When the taxpayer wins in the first instance, the IRS will no longer appeal, ending the litigation.

According to the Ministry of Finance, the measure will extinguish almost 1,000 proceedings in Carf, in the total amount of R$ 6 billion, and will help free up the body for the judgment of large debts.