Tax Reform: Construction and Real Estate Sectors Say They Will Pass On Tax Hikes

The sectors oppose the government and argue that the reduction factor envisaged in the project approved by the Chamber is not sufficient to guarantee fiscal neutrality

BRASÍLIA AND SAO PAULO – The construction and real estate sectors criticized the situation legislative text of tax reform approved by the Chamber of Deputies. The sector reiterated in a statement on Monday that the regulation of the tax reform will have the effect of increasing real estate prices in the country. According to the Brazilian Chamber of the Construction Industry (CBIC), the sector believes that the text approved by the Chamber of Deputies welcomed the improvements, but the changes are not enough to prevent the increase in prices.

The new album was released after the Ministry of Finance issue a note clarifying that the new system will not result in a significant increase in costs for the sector. In the clarification, the CBIC says that the government’s original proposal, which envisaged a 20% reduction in rates, would increase the tax burden on all types of housing.

Even the 40% reduction contained in the approved text is not sufficient to guarantee fiscal neutrality and the increase in costs will be passed on to the consumer.

“The sector bodies advocate maintaining the tax burden on housing. And this maintenance is only guaranteed with a reduction of the rate of 60%, as studies show. The objective is to avoid an increase in the current tax burden on real estate, so that there is no increase in prices, guaranteeing Brazilian families the right to housing and affordable housing for all,” the text reads.

The industry also claims that the Ministry of Finance itself has acknowledged that there will be an increase in middle-class property prices. The Treasury says that the cost of social housing tends to fall around 3.5%, while that of high-end properties could increase around 3.5%. According to industry bodies, the program will also increase the current tax burden My Home, My Life (MCMV)with a load increase of 15.4%.

“It is important to clarify that the expected compensation of a potential reduction of the burden in the Minha Casa, Minha Vida program with the increase in taxation in the medium and high standard segments will not have the desired effect: the MCMV corresponds to only 15% of the real estate market, in sales values. In other words, weighing the new rates based on actual production, there will be an increase of three percentage points of the average rate of the sector: this corresponds to an increase in the tax burden of 40%.”, the note reads.

The CBIC recognizes the importance of tax reform, but warns against democratic debate that will lead to an improvement in the rules. “By recommending the 60% reduction, the construction and real estate sectors are not seeking benefits or a reduction in the volume of taxes on their production chain. We argue that the reform modernizes the tax framework without increasing its burden,” the sector says.

What might taxation look like?

Experts disagree on what the tax rate will be Value Added Tax (VAT) of the segment.

In the case of real estate trading, currently, the profit obtained from the sale is taxed at around 8%, without considering the Real Estate Transfer Tax (ITBI) charge of 3%. With the reform, the sector will pay taxes at 15.9%, without considering tax credits.

According to Paulo Vaz, tax partner at VBSO Advogados, the measure is harmful to the real estate market. “The 15.9% rate on the gain from the sale, added to the ITBI, can generate a final rate of 18.9%, which is double the current rate,” says Vaz.

Tax consultant Maria Carolina Gontijo comments that this 15.9% rate will not be the final rate that companies in the real estate sector will pay. She explains that companies will have the advantage of reducing rates thanks to tax credits.

“The tax reform works with the value added tax (VAT), which focuses on added value. In other words, companies that build and sell apartments or houses can claim tax rebates on the taxes paid for the purchase of construction materials. These tax credits tend to reduce tax rates to 15.9%,” Gontijo says.

In a study sent to E-Investora platform that provides information on investments in Statethe Union of Real Estate Purchase, Sale and Management Companies (Secovi-SP) establishes new tax rates on profits from the purchase and sale of real estate. Houses and apartments that cost up to R$ 240,000 will have to see an increase in their tax rate, from 6.41% to 7.4%. According to Secovi-SP, this rate increase tends to result in a 15.4% increase in taxes for houses and apartments in this price range.

In the order of R$ 500,000, the tax increases from 8.11% to 10.60%, which represents a 30.7% increase in the tax burden. For properties worth R$ 1 million, the simulation shows a 48.8% increase in the tax burden, with the tax increasing from 8.11% to 12%. On houses and apartments worth R$ 2 million or more, the tax increases from 8.11% to 12.30%, with the tax burden increasing by 51.7%. /With Fernanda Trisotto/Brasília and Bruno Andrade/San Paolo/E-Investidor

Source: Terra

Rose

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