Despite all the benefits of implementing taxation in the VAT model, this is not an easy change to put into practice. After all, we are talking about the extinction of five taxes and the emergence of a single tax instead.
An alternative to put this into practice would be to make specific changes to existing taxes, seeking to correct their defects and bring them closer to the standard of good VAT. This is a possible strategy, but with limited effects and difficulties in implementation. But how do i figure out sales tax? Then there comes the tax calculator as a solution.
The existence of purely cumulative taxes, such as ISS and installments, and the fragmentation of the tax base between different taxes are some of the problems that prevent the efficient functioning of the non-cumulative debit and credit regime (for example, debts ISS do not generate ICMS credits and vice versa).
- In addition, attempts to unify the current tax base such as the unification of the ICMS with the ISS tend to generate strong resistance due to their impact on federative autonomy and the sharing of revenue between states and municipalities.
- For this reason, modifying the characteristics of current taxes to bring them closer to those of a good VAT can create serious transition problems. An example would be the migration of ICMS collection to the destination state, through the reduction of interstate tax rates. This change would have many positive effects, including a reduction in the fiscal war, but it could also generate several problems such as a significant increase in the tax burden and the accumulation of tax credits in interstate operations.
In other words, occasional changes in taxes on goods and services are possible, but their effects tend to be limited and their political cost may not be much less than that of a wide-ranging change, whose positive effects on the economy would be much greater. It is based on these findings that the replacement IBS appears as a viable alternative.
Such an impacting tax reform cannot be put into practice overnight. For this reason, the proposal for the creation of the IBS foresees a transition phase for the new taxation model which would be carried out progressively, over ten years, keeping the tax burden constant.
In practice, the IBS would be created with a low rate (1%), which is maintained for a two-year trial period, compensating rate in a compensatory manner. The two-year trial period would serve not only to assess the functioning of the new tax, but also to accurately measure its revenue potential.
After the test period, the transition would be completed in another eight years, through the progressive and linear increase of the IBS rate and the simultaneous reduction of the rates of the current five taxes, which at the end of the process would be extinguished.