Jefferson José RodriguesChief 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

Consumption Income Social Sec. Property Others

Federal

IPI

PIS/Cofins

Cide Comb.

State

ICMS

Local

ISS

Federal

IRPF

IRPJ

CSLL

Federal

INSS

Federal

Rural

State

Vehicle

Local

Urban

% GDP 16.4 8.1 6.9 1.0 5.0

% Tax Burden 44.0 21.6 18.4 2.8 13.2

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 1999.

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 *

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Tax C

olle

ctio

n (

% o

f G

DP)

* Pasep included.

PIS/COFINS

1.65% (1983) 5.40%

(2005)

Receita Federal

0%

5%

10%

15%

20%

25%

30%

35%

40%

83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

PIS/Cofins Collection *R

ela

tive S

hare

(%

)

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 CollectionTax C

olle

ctio

n (

% o

f G

DP)

IPI

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

2.52% (1983)

1.29% (2005)

Receita Federal

0%

5%

10%

15%

20%

25%

30%

83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

IPI CollectionR

ela

tive S

hare

(%

)

IPI

% of Federal Revenue Taxes

% of Consumption Collection

Receita Federal

Tax CollectionTax C

olle

ctio

n (

% o

f G

DP)

PIS/COFINS + IPI

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

7,0%

8,0%

83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

4.18% (1983)

6.70% (2005)

Receita Federal

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

PIS/Cofins + IPI Collection *R

ela

tive S

hare

(%

)

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

0,0%

0,1%

0,2%

0,3%

0,4%

0,5%

0,6%

83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Tax CollectionTax C

olle

ctio

n (

% o

f G

DP)

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 RodriguesChief of Economics Studies

The Federal Consumption Taxes