The tax reform bill sent to Congress by President Luiz Inácio Lula da Silva will soon trigger a yellow alert in the pay-television industry because it proposes to abolish all special rates of state-collected sales tax (ICMS). The rate for pay TV is currently 10.5%, as opposed to an average of 25% for other telecommunications services.
According to Ana Cláudia Utumi, a tax lawyer and partner of law firm Tozzini, Freire, Teixeira & Silva, the bill does away with special tax rates and exemptions in every case except small business. In their place it introduces a new five-rate scheme for all products and services. Pay television will probably be classified with other telecoms services. This is the problem, since telecoms has never been given special tax treatment.
A specific law will later have to be passed to classify products and services in each of the five new ICMS rates. This is currently done by individual states or nationally by an interstate council of state finance secretaries (Confaz).
The problem with the new approach, says Ana Cláudia Utumi, is that interest groups will lobby to get their product or service classified in a low tax bracket . ?There will be pressure from every side on Congress and only a few concessions can be made,? she notes.
The telecoms industry will lobby in one direction and states will bring pressure to bear in the opposite direction. Telecoms is one of the largest sources of tax revenue for states, which will be reluctant to accept any but the highest rate. "For example, under the current system about 40% of São Paulo State?s ICMS revenue comes from telecoms, energy and oil," she says.