Source: Municipal Information Observatory, 05/03/2009

Tax reform is going to die a dead death. Contrary to what the defenders of the government project proclaim, she will not die of death killed by the hands of the opposition to the government. Nor by economists, teachers, intellectuals and politicians engaged in personal or party projects. The current tax reform was condemned to death for creative poverty, and for its own inconsistencies, defects and inaccuracies.

Despite the peremptory statements, repeated every semester by the last governments that “this time the reform passes”, the probability of this occurring is minimal, if not to say null. This is because since 1992, when an attempt was made to revise the 1988 Constitution, the proposals submitted by the government to the Chamber of Deputies have always been the same, with minor occasional variations.

In reality, all the official tax reform proposals have in common the same orthodox, conventional philosophy, which Roberto Campos characterized as pathetic attempts to “perfect the obsolete”. They are not reforms, as expected, but only adjustments and adaptations of a tax model that has been suffering from a chronic degeneration process towards a set of tax rules without logical consistency and totally devoid of functionality.

In reality, the pseudo-reformists of the past sixteen years have done nothing but repeat old and frayed buzzwords of introductory public finance textbooks, such as the uncritical rejection of the “evils of cumulativeness” and the inconsequential apology for the added value taxes. At the same time, they close their eyes to the real problems that afflict Brazilian taxation, such as the pantagruelic bureaucracy that has taken over the system, the infamous corruption that arose from the putrefaction of government-taxpayer relations and the discouragement of production and job creation caused by explosion of operating and administrative costs imposed by accessory tax obligations. We all forget that these nefarious features of our tax model are direct consequences of the “ideal” model built in the ivory academic towers. The consequence is that tax Darwinism generates deformed monsters, but highly adapted to the dysfunctional impositions of a technocracy taken by the “delirium tremens” of bureaucratic drunkenness.

The proposal approved by the Special Tax Reform Commission is the maximum expression of these distortions. The concepts are imprecise and profoundly alter the volume of revenues available to the country's federative units, as has been valiantly demonstrated by Governor José Serra, not because of the unstoppable greed of rich state governors, as government officials claim, but out of pure civility federative and due to strict technical rigor. The tax sharing devices seek to achieve a level of fine tuning to guarantee distributive neutrality that border on laughable, and only exacerbate the suspicion that the allocation of revenues will become an obscure process of voluntarism by the governing group. The complexity of the processes, the transitional provisions and the lengthened and mismatched deadlines for their implementation make the state and municipal governments increasingly resistant to any loss of tax competence.

The intention to redistribute the revenues of the main tax in the country, the ICMS, in favor of the consuming regions is not accompanied by any numerical simulation of its consequences. Government "experts" allege that the issue of tax rates is an infra-constitutional issue and that a premature discussion will disturb the debates. They charge a blank check from governors and mayors.

Furthermore, it is worth mentioning that the change in the ICMS sharing criterion, by harming the large municipalities, creates resistance on the part of the mayors of the wealthiest cities, and this has an important weight for the death of the tax reform.

The tax reform demanded by Brazilian society is not the one being discussed in Brasilia. It does not simplify, it increases the complexity in the sharing process, it shuffles the current tax competences and, probably, it will increase the tax burden of taxpayers. The inevitable result will be an increase in evasion and corruption, unfair competition between those who evade the most against their obligations and the loss of competitiveness of the national economy.