BRAZIL increased the PIS tax rate from 0.65% to 1.65% effective on December 1, but also allowed a crediting mechanism that will reduce the taxes owed in some cases.
The PIS tax is a monthly tax on gross income of Brazilian companies. The receipts are used to fund a federal social integration program. The government announced the rate increase in provisional measure 66/02 on August 29. However, it said, at the same time, that companies will be allowed in the future a credit for PIS taxes already paid earlier in the production chain. Credit will be allowed for taxes already paid on certain goods acquired for resale and on depreciation of machinery and equipment used in manufacturing.
The government plans to create a similar, noncumulative system for the 3% COFINS tax by December next year, according to José Roberto Pisani and Yoon Chung Kim with Pinheiro Neto Advogados in São Paulo. The COFINS tax is a social security levy. It works the same way as the PIS tax in that it is collected on monthly gross income. Brazil has also created a special PIS and COFINS tax regime for electric generating companies that opt to use it. The special regime allows receipts from certain power sales to be excluded from the tax base.