Author: Clóvis Panzarini *

Source: O Estado de S. Paulo, 19/01/2009

Conventional wisdom proclaims that the magnitude of the tax burden is the main handicap for the competitiveness of the national productive sector. I dare to disagree, because the rule that measures tax burden is not the same that measures competitiveness.

 

In 2008, the Brazilian tax burden must have been close to 36% of the gross domestic product (GDP), but, conceptually, there could be a burden of 34% even more severe or one of 38% less offensive to competitiveness, since it it is its magnitude that unbalances the market, but rather the quality of taxes and the way the proceeds of its collection are spent. A country with a “clean” tax system, with taxes that obey the principles of neutrality, equity, efficiency, transparency and simplicity, managed by an austere government in spending and that produces public goods in adequate quantity and quality, will certainly not have the tax factor as an obstacle to its competitiveness, whatever the magnitude of the load. But there is a national outcry to reduce the tax burden.

 

It is to be considered, however, that the only contributor in fact is the individual citizen. The company is mere legal fiction: it has no soul, no pocket and loses competitiveness due to the poor quality of the taxes, not due to its weight. The main Brazilian tax problem is not, therefore, the size of its load, but the deformation of taxes, true frankensteins that attack all the precepts that should guide a decent system.

 

The tax reform proposal now on the agenda - the Constitutional Amendment Proposal (PEC) 31-A / 07, recently approved by the Tax Reform Commission of the Chamber of Deputies - is supposed to modernize the tax system, solving its main problems. However, the most attentive analyst must be discouraged by what he proposes. See the issue of transparency.

 

ICMS currently, as a constitutional rule, makes up its calculation basis, that is, it is charged “from the inside”, doing the magic of transforming the nominal rate of 18% into 21,95% without the consumer noticing. In the proposal, he continues with the same disease and, more than that, it also contaminates the new federal VAT, as it is predicted that it can be charged “from the inside”. Supporters of this system say that to collect the same thing, the rate “outside” would have to be very high, leading to an increase in tax evasion. This argument causes laughter in those in the industry. The dishonest taxpayer does not withhold tax, but public money. In the sale of a pair of shoes that today costs R $ 82, excluding ICMS, the evading merchant steals R $ 18 when he does not issue an invoice, whether the rate is 18% “inside” or 21,95% “outside ”. The “inside” rate does not deceive the taxpayer, but the consumer, who thinks he is paying only 18% of ICMS on his new shoes.

 

Problems related to the efficiency and neutrality of the ICMS are either not solved or the solution is so postponed that a good part of the companies will no longer be alive when they are solved. The prohibition on the credit of the tax levied on goods for use and consumption and the four-year installment of credit related to capital goods, for example, constitute a strong offense against the principle of non-cumulative and, therefore, the neutrality of the tax. The aforementioned PEC proposes the elimination of double taxation of goods for use and consumption in a process that will take 19 years: one tenth per year from the ninth year after the promulgation of the constitutional amendment!

 

The second problem (ICMS credit related to capital goods) will have a quicker solution: it will definitely occur as of the eighth year of said promulgation. States resist the quickest solution on the grounds of unbearable loss of revenue. Now, the quantum of desirable revenue is, of course, defined by the tax rates, but preference is being given to apparently low nominal rates, while the real tax burden is contaminated by “rates” invisible to the different public. That same pair of shoes whose “outside” rate is already 21,95% has an even greater tax burden when one also counts the double taxation of goods for use and consumption used in their production. If, say, the 23% tax was imposed on that pair of shoes, but without the magic of charging “from the inside” and without the double taxation of goods for use and consumption, their tax burden would be strictly the same, but more smart and transparent.

 

Another factor that affects the neutrality of the ICMS is the fiscal war, which causes identical goods to compete in the same market with different tax charges. That PEC, which promises to end this spree, ends up encouraging it - at least until the interstate rate reaches its final level of 2% from the 12th year on - by opening a real hunting season for investors, validating all aggressions to the national ICMS law made up to July 5, 2008 and - what is worse - encouraging new illegal concessions until the date of the promulgation of the constitutional amendment, which will be valid since the National Council for Farm Policy (Confaz), by an absolute majority of its members, do not deconstruct them. The process is reversed: instead of unanimity to grant the benefit, as it is today, an absolute majority is required for its overthrow.

 

Optimists say this is better than nothing. But, although approved, this reform, in the first years of its effectiveness, is strictly nothing. Like Pastor Jacó, in love with Raquel in the immortal poem of Camões, we are content to see her. And in the end, the Laban amendment will give us Leah.

 

(*) economist, former tax coordinator of the São Paulo State Finance Department and managing partner of CP Consultores Associados Ltda (clovis @ cpconsultores. with .br)