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Current and Deferred Income Tax and Social Contribution | 12 Months Ended
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Dec. 31, 2022
Current and Deferred Income Tax and Social Contribution |
Current and Deferred Income Tax and Social Contribution | 23 Current and Deferred Income Tax and Social Contribution a. Reconciliation of income tax and social contribution The reconciliation of income tax and social contribution expense is as follows:
| As of December 31, 2022 |  |  | As of December 31, 2021 |  |  | As of December 31, 2020 |
Loss before income tax and social contribution for the year | (105,687 | ) |  | (155,843 | ) |  | (71,053 | )
Nominal statutory rate of income tax and social contribution | 34% |  |  | 34% |  |  | 34% |
IRPJ and CSLL calculated at the nominal rates | 35,934 |  |  | 52,987 |  |  | 24,158 |
Share of loss equity-accounted investees | (1,534 | ) |  | - |  |  | - |
Permanent additions | (8,292 | ) |  | (7,265 | ) |  | 1,246 |
Additional IRPJ | - |  |  | 24 |  |  | - |
Difference in presumed profit rate of subsidiary | 3,617 |  |  | - |  |  | - |
Tax Contingencies IRPJ and CSLL | 23,703 |  |  | - |  |  | - |
Impairment write-off on tax loss carryforward | (2,314 | ) |  | (8,657 | ) |  | - |
Total IRPJ and CSLL | 51,114 |  |  | 37,089 |  |  | 25,404 |
Current IRPJ and CSLL in the result | 10,668 |  |  | (11,297 | ) |  | 7,874 |
Deferred IRPJ and CSLL in the result | 40,446 |  |  | 48,386 |  |  | 17,530 |
| 51,114 |  |  | 37,089 |  |  | 25,404 |
Effective tax rate of Income and social contribution tax benefit | 48% |  |  | 24% |  |  | 36% |
b. Deferred taxes Changes in deferred income tax and social contribution assets and liabilities are as follows: i. December 31, 2022
| As of December 31, 2021 |  |  | Effect on profit (loss) |  |  | As of December 31, 2022 |
Income tax/social contribution: |  |  |  |  |  |  |  |
Income tax and social contribution losses carryforwards (ii) | 307,319 |  |  | 114,921 |  |  | 422,240 |
Temporary Differences: |  |  |  |  |  |  |  |
Impairment losses on trade receivables | 13,010 |  |  | 7,461 |  |  | 20,471 |
Provision for obsolete inventories | (1,262 | ) |  | 4,608 |  |  | 3,346 |
Imputed interest on suppliers | (2,157 | ) |  | (3,391 | ) |  | (5,548 | )
Provision for risks of tax, civil and labor losses | 20,025 |  |  | 420 |  |  | 20,445 |
Refund liabilities and right to returned goods | 9,470 |  |  | 6,348 |  |  | 15,818 |
Lease Liabilities | 6,660 |  |  | 1,276 |  |  | 7,936 |
Fair value adjustments on business combination and goodwill amortization (i) | (248,628 | ) |  | (109,826 | ) |  | (358,454 | )
Other temporary difference | 25,968 |  |  | 18,628 |  |  | 44,596 |
Deferred Assets, net | 130,405 |  |  | 40,446 |  |  | 170,851 |
(i) | Goodwill and fair value adjustments on business combination comprise three components, being (i) goodwill and fair value adjustment of prior business combination by Somos; (ii) amortization of fair value adjustment related to acquisition of the company; and (iii) deductibility of the acquisition goodwill for tax purposes as allowed by tax law.
(ii) | The Company’s income tax and social contribution loss carryforwards are primarily the result of tax amortization of goodwill and the amortization of certain intangibles recognized related to the business combination in 2018. In accordance with Brazilian tax regulation, tax loss carryforwards have a limitation for use of 30% of taxable profit generated in each year and do not expire. The tax benefit is expected to be realized over an estimated 6 year period beginning in 2026.
ii. December 31, 2021 and 2020 Changes in deferred income tax and social contribution assets and liabilities are as follows:
| As of December 31, 2020 |  |  | Effect on profit (loss) |  |  | Deferred tax on business combination |  |  | As of December 31, 2021 |
Income tax/social contribution: |  |  |  |  |  |  |  |  |  |  |
Income tax and social contribution losses carryforwards | 182,257 |  |  | 125,062 |  |  | - |  |  | 307,319 |
Temporary Differences: |  |  |  |  |  |  |  |  |  |  |
Impairment losses on trade receivables | 9,543 |  |  | 3,467 |  |  | - |  |  | 13,010 |
Provision for obsolete inventories | 3,263 |  |  | (4,525 | ) |  | - |  |  | (1,262 | )
Imputed interest on suppliers | (744 | ) |  | (1,413 | ) |  | - |  |  | (2,157 | )
Provision for risks of tax, civil and labor losses | 19,138 |  |  | 887 |  |  | - |  |  | 20,025 |
Refund liabilities and right to returned goods | 10,903 |  |  | (1,433 | ) |  | - |  |  | 9,470 |
Lease Liabilities | 4,764 |  |  | 1,896 |  |  | - |  |  | 6,660 |
Fair value adjustments on business combination and goodwill amortization (i) | (150,598 | ) |  | (90,588 | ) |  | (7,442 | ) |  | (248,628 | )
Other temporary difference | 10,020 |  |  | 15,033 |  |  | 915 |  |  | 25,968 |
Deferred Assets, net | 88,546 |  |  | 48,386 |  |  | (6,527 | ) |  | 130,405 |
(i) | Goodwill and fair value adjustments on business combination comprise three components, being (i) goodwill and fair value adjustment of prior business combination by predecessor Somos Anglo; (ii) amortization of fair value adjustment related to acquisition of the predecessor Somos Anglo by the successor Vasta; and (iii) deductibility of the acquisition goodwill for tax purpose allowed by tax law.

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