Taxation

Category: Articles

The journey of tax reform

Finally, we approved the tax reform, aiming to overcome old problems that affect our economic growth. We will move from an old system to a new one, starting the regulation and implementation of the general measures of Constitutional Amendment 132. The time has come to begin our journey — scheduled for ten years — towards the promised land in search of GDP growth, tax equity, neutrality fiscal, simplification, transparency, de-bureaucratization, modernization of taxes, redistribution of revenue between federative entities, reduction of tax evasion, collection at destination, changes in income tax, end of the cascade effect.

We begin a long journey, and the old and the new will coexist in the transition.

On this journey there will be a debate on dozens of complementary laws, detailing more than 70 points that must be regulated through government proposals to Parliament.

The definition of tax rates; who will pay and to whom; exceptions with lower rates; what will be the administration of the system and the interaction between the federative entities; the collection, inspection and distribution of taxes by the Management Committee that will be created; compensation mechanisms between states and municipalities; procedural standards and definition of selective tax are some of the important topics that will spark many disputes and generate great movement throughout society, with in-depth technical discussions in the legal, auditing and accounting sectors.

We will face the divergence between those who rightly defend the necessary balance of public accounts and those who do not agree with spending cuts, creating a conflict that will affect the size of the tax burden.

In the corporate environment, there will be conflicts between productive sectors to define which activities will be more or less burdened and how the criteria for the incidence of the Selective Tax will be established. And we still have to guarantee taxpayers' rights, reduce trillion-dollar tax litigation, combat tax evasion and the growth of the illegal market, issues that must necessarily be directly included in these debates.

Faced with so many matters that must be scrutinized, and knowing that “God or the devil are in the details”, the time has come to decide whether we will take advantage of or lose this historic opportunity to finally improve our tax system.

It certainly won't be a smooth crossing. We will have to part seas, face bad advisors and deep conflicts of interest, accept structural changes and so, without Moses to guide us, we have to move forward.

Get out of speech and take action. Our destiny depends on us getting the right direction and overcoming archaic structures that hinder our economic and social development. In truth, we need to move away from what Roberto Campos said: “Brazil does not miss the opportunity to miss an opportunity.”

 

Tax Reform: Pillar for a fairer and more developed Brazil!

Tax Reform is getting closer and closer to becoming a reality in our country. And ETCO is attentive and engaged in this important debate. For 20 years, we have defended and encouraged business ethics, promoting a fairer and more transparent market.

We understand that the tax issue is essential for the economic and social development of Brazil. Therefore, we defend fundamental pillars for an efficient reform: legal certainty, simplification of procedures, rationalization of processes and no increase in the tax burden.

We believe that the Tax Reform is a unique opportunity to boost our country, generating more investments, jobs and income. In addition, it is necessary to combat illegal practices, such as tax evasion and persistent debtors, which harm society as a whole.

Our proposals are in line with studies and assessments carried out in partnership with renowned consultancies, demonstrating the importance of facing the tax litigation and underground economy, involving trillions of reais.

It is in view of this scenario that, with the advance of the tax reform proposal in the Brazilian parliament, ETCO believes that it is necessary to deepen the theme in order to assist in the decisions of the constituted powers, especially the legislative. All of this with a view to improving the business environment, increasing legal certainty and effectively and efficiently combating tax evasion.

Thus, the pillars of any tax proposal must ensure (i) legal certainty; (ii) simplification of taxpayer procedures and real-time inspection; (iii) streamlining processes; (iv) no increase in the tax burden; (v) definition of uniform rates, fighting the fiscal war; and (vi) exemption from exports (with the maintenance of immunity and existing credits).

Considering the proposals initially presented to parliament, it is important to highlight some themes:

  1. Regarding the institution of selective tax, we defend that, if adopted:
  2. Be of a restricted nature, with the prediction of incidence "ad rem" and "ad valorem", depending on the productive sector that is expressly defined by law - not in constitutional terms, so that the government is given flexibility to adapt to reality and effective need of its implantation;
  3. There must be, in the constitutional text itself, mechanisms and limits that prevent the selective tax from being used as a way of increasing revenue to close the public deficit;
  4. The claim to create or increase must be duly supported in said bill by prior studies of economic and social impact that justify it;
  5. It must have its limitations very clear in the Federal Constitution (maximum rate), as well as, in the case of goods already subject to the levy of the Contribution on the Economic Domain (CIDE), it must be accompanied by the necessary adjustments in the constitutional text, in order to avoid the accumulation of taxes; It is
  6. The tax must not be discriminatory;
  7. The maintenance of credits accumulated under the old regime must be guaranteed - even if their use, due to the circumstances of each taxpayer, does not happen within the transition period, there must be a way to maintain these credits -, with the express definition in the PEC itself on the return of accumulated credits and the monetization of existing credit balances in the transition, with a fixed term;
  8. In line with the pillars of simplicity and legal certainty, application of the single-phase taxation regime for certain sectors, to the detriment of the current “forward” tax substitution model, and
  9. The transition period must ensure predictability and be adjusted for cases of operations with tax incentives as a counterpart to investments made, balancing the period so as not to increase the complexity of tax compliance.

From everything presented, it is evident that the Tax Reform represents an opportunity to raise Brazil to a level of greater development and this moment cannot be wasted. The guarantee of the necessary legal certainty, simplifying the tax structure, promoting the formalization of the economy, alongside the reduction of the space for litigation and the fight against the practices of habitual debtors, constitute parameters and premises that should guide the conformation of a new reality in the relationship tax / taxpayer.

We count on everyone's support to build a fairer, more transparent and efficient tax system.

The importance of public security policies in the fight against organized crime

It is not news to anyone that the illegal market is an activity that is growing more and more in Brazil. The criminal operations of militias and factions, with actions in smuggling, money laundering and the entry of weapons, drugs and various other illegal products, unfortunately, find their articulation axes not only in our country, but throughout the world and must be fought with commitment by the security forces.

As a direct result of this equation, we have the worrying repetition of episodes of extreme violence, with deaths ordered by militias and criminal factions, whether of traders who refuse to sell illegal products or public security authorities, as in the case of the execution of the prosecutor Paraguayan Marcelo Pecci – who investigated cases of drug trafficking, organized crime, money laundering and terrorist financing in the Triple Border region, between Paraguay, Brazil and Argentina.

Also of concern is the constant evolution in the number of weapons, drugs and illicit products, such as cigarettes and pesticides, in circulation in the country. The ease with which criminal activity feeds back, with money laundering and corruption schemes, is impressive, moving billions of reais and, of course, without paying any taxes. This resourcefulness of crime affects the entire process of social inclusion. The co-option of minors for criminal practices on the borders, as well as in the communities of our cities, is extremely serious. The future of these young people is compromised by this flagrant enticement by militias and criminal organizations.

For facts like these, updating and constant investment in combat actions conducted by the Ministry of Justice and Public Security, in partnership with the Federal Revenue Service and other security bodies, are extremely important. By the way, partnership and integration are key words, since the exchange of intelligence information between the forces of repression, whether at the municipal, state or federal level, is essential to undermine the power of criminals.

These combat fronts are responsible, every year, for the apprehension of tons of drugs, smuggled products, as well as boats, firearms and thousands of suspects involved, avoiding billionaire losses to the Nation's public coffers. To get an idea, in the last seven years there has been a 200% increase in damage caused by the illegal market to Brazil, from R$ 100 billion (2014) to R$ 300 billion (2021), according to a survey by the National Forum Against Piracy and Illegality (FNCP).

The success of the integrated security operations underscores the importance, for the State and for the entire Brazilian society, of carrying out these actions by the public security authorities of the new government, in a collective effort to contain crime, since the challenges faced are immense. for special police operations to fight crime in a country of continental dimensions, with more than 16 km of land borders and borders with ten countries.

It is important that all Brazilians have the exact dimension of how these problems affect society, whether in the safety of citizens, in tax evasion that bleeds public coffers and in the problems generated in companies that operate within the legality and pay their taxes correctly to the purse.

In addition to the dry borders, as land borders are called, the presence of operations on the sea coasts is essential, as we have had an increase in the arrival of illegal products from Asia and the Middle East in ports located especially in the Northeast. It is a front that must always be strengthened with inspection actions, as it represents a continuous threat.

The public security authorities in Brazil, by keeping their focus and attention on the fight against organized crime, continuously investing in our continental borders in security and social outreach programs, will respond to an outcry from all Brazilians.

 

Digital ethics and the goals of the UN

In recent years, issues related to ethics in the corporate world have been increasingly debated with the aim of directing conduct and improving coexistence in the market.

The Brazilian Institute of Ethics in Competition - ETCO, has been defending this cause for twenty years, proposing initiatives and amplifying debates, demonstrating that respect for ethics and the law are factors that encourage development, providing legal security, a fundamental factor for attracting investments and generation of jobs and income.

This pioneering vision, in the last decade, was strengthened by the action of the UN in defining the so-called Social Development Goals, the SDGs, which should guide actions to achieve results by the year 2030. This agenda stimulated the adoption of ESG metrics in the corporate world, guiding the achievement of goals aimed at the effective respect for the environment, social relations and best governance practices.

These positions are directly related to combating misconduct and defending compliance with the law, strengthening actions: sustainability, reverse logistics, pollution reduction, generation of carbon credits, labor rights, acceptance of diversity and inclusion, encouragement of participation, fight against corruption; compliance with tax and social obligations, defense of legal practices in the market, traceability, among others.

However, alongside ESG practices — favorable to the dissemination of values ​​and principles in the corporate environment — attention is drawn to the so-called “greenwashing”, which can also be accompanied by “socialwashing” and “compliancewashing”, that is, this may not be true. concern with sustainability, respect for society and the fight against ethical deviations, these postulates can be mere declarations, constituting misleading advertising. Thus, it is necessary that the policies adopted are effective, efficient and efficient.

This context demonstrates that capitalism, founded on free enterprise, has to assume responsibilities, incorporating the defense of human rights in corporate governance. Profit at any cost is not acceptable and has been increasingly rejected by society.

Social networks and the media have been revealing behaviors that are repelled: companies caught for practices considered racist; acceptance of harassment; use of work analogous to slavery, even if carried out by contracted third parties, in short, any disrespect to human dignity is denounced and those involved must take a stand, given that reputational losses are quickly felt.

Respect for the principles and values ​​highlighted by the ESG are certainly valid for social media – a new dimension of human relationships – which are becoming increasingly important and which, equally, must respect ethics and the law. After all, the internet cannot be isolated from reality, therefore, it needs to follow the rules of coexistence. The dissemination of lies, the so-called “Fake News” that intentionally expand ignorance; the stimulation of hatred; the offer of illegal products that harm health; of miraculous medicines and healing processes, among other practices identified in the digital space; must be curbed and are being the subject of legislative initiatives, not only in Brazil, but throughout the world. These laws need to be deeply discussed, to validate transparency and remove any relationship with censorship, aiming to contain abuses.

It is interesting to note that whenever there is a movement of control in the digital environment, there are reactions stating that the sacred right to freedom of expression is being violated. This happened when it was proposed to curb offers of illegal products by marketplaces and, as the discussions matured, it became evident that offers cannot be confused with freedom of expression. There has been progress in shaping this understanding, including the participation of operators in the digital market. The same must happen when they intend to mix up the fight against false information with censorship.

The digital environment will only grow and will have to adapt to the law and respect for ethics, as all human activity should be, whether on a personal level, or in the institutional and corporate environment. And the same should happen with the development of Artificial Intelligence. This movement is irresistible.

Even with the enactment of laws, as a proposal for conflict resolution, it would be interesting if judicialization were avoided with the adoption of alternative means, such as mediation, seeking greater speed and legal certainty. Self-regulation can be encouraged with the participation of the parties involved in the search for convergences and consensus, after all it is not credible that large companies, global players in the digital market, bet on confrontation and are contrary to ethics and the law.

There will certainly be advances and the ESG metrics disseminated by large corporate structures will not be mere declarations of good intentions, both in the physical and digital markets.

Underground economy grows in Brazil

The shadow economy's share in the Brazilian economy reached around 17,8% of GDP in 2022, as shown by the Underground Economy Index (IES). This result is higher than that observed in 2021 (17,4%) and points to a return to the pattern of elevations observed in the pre-pandemic period. The index built in a partnership between the Brazilian Institute of Ethics and Competition, ETCO, and FGV IBRE measures the evolution of the underground economy since 2003 and seeks to capture the evolution of activities that operate outside the laws and regulations that affect formal activities in the country .

The increases observed in the indicator up to 2019 were a consequence of the crisis that began in mid-2014, which reduced the formal sector of the economy, and the slow recovery of economic activity, concentrated in its most flexible part, the informal economy, which was pulling the employment in the country. At the same time, the reduction in interest rates and the slow increase in income softened the shadow economy's growth scenario, which would be stronger in the absence of these factors.

However, the events of recent years associated with the Covid-19 pandemic increased the level of uncertainty in relation to the performance of the economy in an extraordinary way. The negative impacts on economic activity and on the labor market affected informal workers more intensely, compared to formal workers. This change in the composition of the labor market, with a greater weight of formalization, combined with the sharp reduction in the level of economic activity, contributed to the decline in the Underground Economy Index (IES) in 2020.

After the most acute phase of the pandemic, the process of normalization of economic activity began, stimulating both the formal and informal economy, recording a return of informality to the standards observed in the pre-pandemic period, partly caused by the faster recovery of informal employment , which was to be expected given the greater flexibility in this type of bond, thus, the Underground Economy Index (IES), since 2021, has grown again, reversing the drop observed in 2020.

In the last two years, the return of economic activity has meant that both the formal and informal economy have seen a strong recovery. However, the informal part of the labor market showed stronger recovery in relative terms, causing the IES to present growth in the period, more than offsetting the drop that occurred in the pandemic.

In order to understand this topic in more depth, ETCO (Brazilian Institute of Ethics in Competition) and IBRE/FGV have developed a index for monitoring shadow economy providing an indicator of the evolution of informal activities. Shadow economy is defined as the production of goods and services not reported to the government, deliberately, to: evade taxes; evading social security contributions; circumvent compliance with labor laws and regulations; avoid costs arising from the rules applicable to each activity.

The index starts in 2003, with the highest value of the historical series, around 21% of the Brazilian GDP. Between 2003 and 2014, in the period of strong expansion of formal employment, the Underground Economy Index showed a strong downward trend, reaching its lowest value in 2014 (16,1%). Since then, as a result of the 2015/2016 crisis, the index has shown an upward trend, interrupted by the COVID 19 crisis. The normalization of economic activity signals a further increase in the index.

Several structural factors stimulate the formalization of the labor market: an increase in the average level of schooling among Brazilians; simplification measures of legal rules that reduce the cost of formalization, such as the implementation of electronic invoices (NFes), SIMPLES, MEIA and the expansion of the credit market reduced the shadow economy in the country in the 2000s, expanding economic activities in accordance with the law.

It is a fact that the economic situation has a strong impact on the underground economy. The 2015/2016 crisis led to the growth of informal employment, stimulating successive increases in the Underground Economy Index between 2015 and 2019.

The advance of the Covid-19 pandemic generated a strong reduction in the space for informal workers, causing the index to decline in 2020, with the change in the composition of the labor market, with a greater weight of formalization, combined with a strong reduction in the level of economic activity .

Since 2021, due to the beginning of economic normalization and the faster recovery of the informal sector, we have noticed an increase in the Underground Economy Index, indicating a return to the pattern of increases observed before the pandemic. In particular, in the year 2022, the weight of shadow economy in GDP was 17,8%. This value observed in 2022 shows that the shadow economy in Brazil moved something close to R$ 1,7 trillion reais, close for example to Sweden's GDP, which correspond to something close to 18% of Brazilian GDP, according to IMF data. .

Due to lower costs, the recovery of the labor market was encouraged by informal employment, with the possibility of a further increase in the shadow economy indicator in the coming years. Therefore, the decrease in the index will depend on the speed of recovery of the economy and the progress of the necessary reforms to stimulate the economy.

The good news is that the structural factors that led to the reduction of shadow economy remain present in the Brazilian economy. In particular, the process of simplifying norms and regulations remains active (with prospects of expansion by the current government), the average Brazilian education continues to increase and the credit market should return to its growth trajectory. In addition, the effects of the labor reform should continue to stimulate the formalization of the labor market, reducing its cost. On the other hand, the creation of the PIX should strengthen, in the coming years, the use of formal payment mechanisms, facilitating the measurement of economic activities and, therefore, in the long term, allowing the reduction of the informal share in the Brazilian GDP.

* Edson Luiz Vismona (president of ETCO – Brazilian Institute of Ethics in Competition) and Fernando de Holanda Barbosa Filho – economist at FGV/IBRE

spending

The title of this article refers to a word not yet incorporated into Brazilian dictionaries. In Portugal, however, it has already been endorsed by the renowned dictionary of the Lisbon Academy of Sciences, which defines it as the “practice that consists in the exaggerated expenditure of money, in the realization of excessive expenses or expenditures and little evident utility, especially on the part of the State. or other public entities”.

In the recent election campaign, I didn't hear any candidate for any office mention cutting wasteful spending. On the contrary, many defended, often as a mere demagogic appeal, the expansion of expenses.

It is reasonable to admit that some proposals for new expenditures are justified, but they should be accompanied by measures aimed at containing expenditure, otherwise their financing will be at the expense of raising the known high tax burden, or an irresponsible increase in public debt.

In addition to extreme weather events, it cannot be ignored that the next government will face an adverse international scenario, involving inflation and recession in developed countries, economic slowdown in China impacting commodity exports, energy crisis in Europe, hunger in Africa and an unpredictable trajectory. in Russia's aggression against Ukraine.

In the context of the enormous needs of the Brazilian State, it would be advisable, although unlikely, to implement a program to restructure public spending, which would honor the efficiency, proclaimed in art. 37 of the Constitution, and eliminate spending.

There is an inexhaustible list of expenses that drain revenue and compromise the provision of public services: the evil secret budget, a permanent source of misuse of public money and corruption; the positions of deputy in the Executive Power of the Union, States and Municipalities; parliamentary “representation” quotas; the remuneration and “advising” of councilors in small municipalities, which subsist at the expense of transfers; the remuneration of public agents for participation in boards of state-owned companies; the working hours of the military police, which allows the provision of private services or participation in “militias”; the “indemnities” in the Legislative and Judiciary Powers, and in the Public Ministry; the excess of diplomatic representations abroad, without any economic or political foundation; double vacations and conversion into remuneration, special holidays and recesses in the Judiciary and the Public Ministry. Utopia? Certainly.

 

THE INTERDEPENDENCE OF THE BRAZILIAN STATE

Throughout the history of Brazil, we have traveled an extensive journey towards the consolidation of a national identity and, with it, the realization of the interdependence that should unite us in the construction of our destiny.

These postulates highlight a fundamental aspect of any civilized society: the preservation of coexistence. All existing rules seek to preserve peaceful relationships between people, environmental sustainability, overcoming social inequalities, seeking justice and social harmony. There is a clear sense of utopia that, as the filmmaker Fernando Birri taught; “Utopia is there on the horizon. I approach two steps, she moves two steps away. I walk ten steps and the horizon runs ten steps. As far as I walk, I will never reach. What is utopia for? That's what it's for: so that I don't stop walking.”

Life in society presupposes recognition and the need to preserve our relationships, permanently encouraging ethics, inclusion, diversity, postures that, lately, have also been valued in the corporate environment with the adoption of ESG metrics, bringing companies, finally, the defense of human rights.

However, actions aimed at strengthening coexistence are threatened. The political debate attests to a radicalization that distances understanding, opposing opinions are violently attacked, without attachment to argumentation, and the “cancel culture” spreads. The opposite is not an adversary but an enemy.

This environment has deep roots in our history. Disrespect for rights are plentiful, sponsored by government officials and supported by parts of society – increasingly suspicious according to a global survey by the Ipsos Institute. The investigation released by Veja shows that when asked “Do you trust others?” made to 22 people in thirty countries, Brazil appears in last place.

Corruption scandals, the sense of impunity that contaminates the whole of society, the profound inequality and certainly difficulty in enforcing the most basic consumer rights are clearly harmful to our coexistence. Yes, our past and what we are living in the present are not encouraging, but they can serve as fuel to change the future.

By remembering that our mutual dependence is the reality that should mean union and that it is possible to overcome our countless difficulties with dialogue, tolerance, without subservience. Thus, we can question and find ways. Utopia? Perhaps, but as Birri taught, this should be our way.

spending

The title of this article ('Despesismo') refers to a word not yet incorporated into Brazilian dictionaries. In Portugal, however, it has already been endorsed by the renowned dictionary of the Lisbon Academy of Sciences, which defines it as the “practice that consists in the exaggerated expenditure of money, in the realization of excessive expenses or expenditures and little evident utility, especially on the part of the State. or other public entities”.

In the recent election campaign, I didn't hear any candidate for any office mention cutting wasteful spending. On the contrary, many defended, often as a mere demagogic appeal, the expansion of expenses.

It is reasonable to admit that some proposals for new expenditures are justified, but they should be accompanied by measures aimed at containing expenditure, otherwise their financing will be at the expense of raising the known high tax burden, or an irresponsible increase in public debt.

In addition to extreme weather events, it cannot be ignored that the next government will face an adverse international scenario, involving inflation and recession in developed countries, economic slowdown in China impacting commodity exports, energy crisis in Europe, hunger in Africa and an unpredictable trajectory. in Russia's aggression against Ukraine.

In the context of the enormous needs of the Brazilian State, it would be advisable, although unlikely, to implement a program to restructure public spending, which would honor the efficiency, proclaimed in art. 37 of the Constitution, and eliminate spending.

There is an inexhaustible list of expenses that drain revenue and compromise the provision of public services: the evil secret budget, a permanent source of misuse of public money and corruption; the positions of deputy in the Executive Power of the Union, States and Municipalities; parliamentary “representation” quotas; the remuneration and “advising” of councilors in small municipalities, which subsist at the expense of transfers; the remuneration of public agents for participation in boards of state-owned companies; the working hours of the military police, which allows the provision of private services or participation in “militias”; the “indemnities” in the Legislative and Judiciary Powers, and in the Public Ministry; the excess of diplomatic representations abroad, without any economic or political foundation; double vacations and conversion into remuneration, special holidays and recesses in the Judiciary and the Public Ministry. Utopia? Certainly.