Solange Galante

The reform and simplification of Brazil’s arcane tax system, with its confusing accretion of cascading taxes, is underway in its congress after 30 years of discussion. The unification of municipal, state, and federal taxes and a reduction in their number—for example, with a single national rate for fuel excise taxes—offers hope for aviation but also the specter of a possible extension of motor vehicle excise taxes to aircraft.
Changing the entrenched tax structure is neither fast nor easy, requiring the amending of the book-length Brazilian constitution, and even if the proposal, PEC 45/2019, moves quickly through congress, it will take effect only in 2029-2034. The current structure is blamed for constraining economic growth and discouraging foreign investment.
The main change is the replacement of five levies collected at different levels via two federal taxes. An alphabet soup of taxes is collected on goods and services: Brazilian taxes tend to be based on consumption rather than income. The substitute for the extinct taxes will be a value-added tax (VAT).
What worries business aviation is that the text simplifying taxation also includes changes to the taxation of assets, such as extending the IPVA motor vehicle tax to so-called luxury means of transport. A July article on portal UOL titled “Why You Pay IPVA on Your Car and Owners of Yachts and Private Jets Are Exempt” shows the political appeal of taxing the rich and lays blame for the differential treatment on the 1988 constitution. The author quotes a tax professor airily dismissing the annual tax rate as “undetermined, but likely to be not more than 10 percent of the value of the asset.” IPVA on cars varies by state, ranging from 2 to 4 percent.
The list of exceptions for the payment of IPVA includes only “agricultural aircraft and operators certified to provide air services to third parties,” which may or may not include air taxi and charter operators. The doubt is because the Chamber of Deputies’ text still may be modified in the senate and even return to the deputies before going to the president, who can sign it as-is or veto articles or paragraphs. Given the uncertainty, many companies and business aircraft owners prefer not to comment on the tax reform before it has a definitive form.
Regardless of the collection of IPVA on aircraft considered “luxury,” the tax changes will affect all Brazilians to a greater or lesser extent. In addition to the IPVA issue, there is the possibility of fuels and lubricants, including those used by aviation, being treated under a specific tax regime with collection at a single link of the supply chain. The inclusion of regional aviation in the differentiated treatment is also a possibility.
Líder Aviação COO Junia Hermont said the company is waiting for the next steps of the reform debate to be able to assess the real business impact. “Even if it is approved by the senate without changes, we will need to understand how companies with air taxi operations will be treated," she commented. "Therefore, it would still be premature to take a position on the subject. Regardless of the outcome, Líder will continue to act in accordance with the country's rules and regulations."
The Congressional Caucus in Defense of Civil Aviation—FPAviação—was launched in May, aiming to help legislators understand the aviation sector and to open dialogue with civil aviation representatives. With 206 deputies, FPAviação has the support of 12 representative entities, including the Brazilian Association of Airlines, the Brazilian Association for General Aviation (ABAG), and the National Syndicate of Air Taxi Companies.
“We emphasize the importance of business aviation for the development of Brazil," said Líder Aviação managing director Bruna Assumpção.&nbsp;"According to ABAG, 83 of the 100 largest companies in the country use business aviation for professional travel and, according to the National Civil Aviation Agency, of the more than 3,200 runways in Brazil, just over 100 serve commercial aviation. Business aviation reaches other parts of the country, acting as a link between production centers and Brazilian business centers, playing a fundamental role in the country’s growth and fulfilling a function that commercial aviation is unable to fulfill.”

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