Reason for surprise to taxpayers, especially at end of fiscal year and end of government was the publication, in the official gazette on November 23rd, of Decree # 9580/2018, which approves a new Income Tax Regulation in Brazil.

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One of the reasons given by the Brazilian Federal Revenue Office (IRS) (1) to new decree is that, during the period of validity of old regulation, tax legislation has undergone numerous modifications, among which changes brought by Law # 12973, from 2014, with relevant impact on corporate income tax.

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Accordingly, the IRS highlights that the new wording regulates and consolidates, in a single document, the rules for taxation, inspection, collection and administration of Income Tax, and is the result of a complete revision of the wording of previous Decree from 1999, to which were incorporated legal changes occurred until December 31st, 2016.

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It would be expected that consolidation would gather all the rules and compile various Income Tax provisions on its 1.050 articles and a huge number of sections and paragraphs. There are 46 more articles than previous edition but take into consideration almost 20 years of validity of old regulation and various changes in the legislation, interpretations and decisions related to income tax in this period, would be acceptable a new regulation even more robust.

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Aiming at ending such long intervals, the IRS points out that, with the publication of Decree # 9580, it is also intended to be implemented a policy of constant updating of Income Tax Regulation, since it is an important instrument of regulatory transparency and consultation of tax legislation.

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The challenge is enormous if we consider the frequency that tax regulations change in Brazil. According to a study by the Brazilian Institute of Planning and Taxation (IBPT), since the enactment of Federal Constitution in 1988, an average of 15.17 federal standards per day or 21.90 federal standards per working day were issued, among provisional measures, laws, decrees, ordinances, normative rulings, work orders, declaratory acts, normative opinions and so on (2). Although not all the publications refer to Income Tax, such numbers are impressive, which cannot be disregarded, making the promise of constant updating a much more difficult task.

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The OECD also brings interesting data in this regard. According to the international organization, frequency of changes in the tax system is one of the main sources of tax uncertainty in OECD member countries (4th), but a much lower priority in Latin America and the Caribbean (15th), Africa (19th) and Asia (20th) (3). With the slow - but already initiated - approach of Brazil to international tax standards, one can expect a higher level by the country in dealing with tax updates.

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There is still the question of complexity. From the IRS point of view, the new regulation makes tax calculation process clearer and simpler, which means greater legal certainty for taxpayers, who will have easier access to necessary information to comply with tax obligations related to income tax.

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Coincidence or not, two days before publication of new Decree, the Federal Revenue Secretary has disclosed information that the group of study responsible for preparing the Income Tax reform project plans to simplify the calculation basis of taxes levied on the profit of companies, in addition to reducing the rates, which currently reach the level of 34% (4).

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Secretary mentioned the US tax reform, which reduced corporate income tax to 21%, and the OECD average of 21.94%, further signaling intention of bringing Brazil closer to the rules adopted by the OECD members.

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In fact, a recent study released by the OECD highlights the continuation of a trend toward cuts in corporate income tax rates, which has been largely driven by reforms in countries with traditionally high corporate tax rates. The OECD average corporate income tax fell from 32.5% in 2000 to 23.9% in 2018 (5).

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In addition, other countries have used recent tax reforms to reduce corporate and individual taxes with a view to increasing investment, consumption and labor market participation, continuing a trend that began a few years ago (6). But up to now Brazil does not demonstrate any effective action in this direction.

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On the contrary, we are taking slow steps on all these issues, with an economy still in crisis, high unemployment, corruption and numerous social problems. Add to this, political obstacles to be overcome, especially in a new Government, with its uncertainties and priorities of beginning of term.

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As can be seen, despite a new income tax regulation and speech by the Federal Revenue Secretary - at the end of its management - there is much to be done in Brazil in the sense of simplifying and reducing tax burden. The good news is that the future Minister of Finance has already stated that next Secretary of Treasury will be someone who agrees with two premises: first, a drastic tax simplification and; second, the reduction of tax burden. The problem is that this supposed reduction would be around 25% of GDP within 10 years (7).

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(1) The quotations to the IRS were extracted from the note published on 11/23/2018, accessed on 11/25/2018 in http://idg.receita.fazenda.gov.br/noticias/ascom/2018/novembro/consolidacao-da-legislacao-sobre-o-imposto-de-renda-e-publicada

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​(2) https://ibpt.com.br/noticia/2684/Quantidade-de-NORMAS-EDITADAS-NO-BRASIL-30-anos-da-constituicao-federal-de-1988, accessed on 11.25.2018.

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(3) http://www.oecd.org/tax/g20-report-on-tax-certainty.htm, accessed on 11.25.2018.

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(4) https://www.jota.info/tributos-e-empresas/tributario/reforma-do-ir-base-de-calculo-21112018, accessed on 11.25.2018.

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(5) http://www.oecd.org/tax/tax-reforms-accelerating-with-push-to-lower-corporate-tax-rates.htm, accessed on 11.25.2018.

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(6) OCDE, quotation above, accessed on the same date.

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(7) https://www.poder360.com.br/economia/receita-federal-tera-secretario-que-seja-a-favor-simplificacao-tributaria/, accessed on 11.25.2018.

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