Lessons from other countries



Source: Season, 18/05/2008


A shopping center in Prague. The Czech government has decided to charge taxpayers at lower rates. Result: business has improved and revenue has risen.

Brazil is not the only country in the world dealing with the issue of taxes. The difference, however, is that dozens of countries are not paralyzed in the discussion about which reform to do. They act. In the past three years alone, 65 countries have reformed their tax systems, 31 of them last year, according to a survey by the World Bank and consultancy PriceWaterhouseCoopers. Most of the changes followed the direction of reducing the tax rates and simplifying the rules. It seems counterintuitive: why would so many governments adopt the attitude of charging less for their services? The reasoning behind these reforms is twofold: first, there is the belief that part of the services provided by the State would be more adequately provided by the private sector. With less expense, the state would not need to receive so much. Second, there is the hypothesis that, by lowering taxes, more people undertake, companies become more competitive and sell more, and, richer, end up contributing more to the government coffers - although the percentage on the total invoiced is smaller.

It was this type of reform that made British Prime Minister Margaret Thatcher and American President Ronald Reagan successful in the 80s. The UK and United States economies took a leap in quality when the government removed obstacles that hampered corporate action. Revenue has worked well in the Czech Republic, where, after a drastic cut in rates over the past three years, tax revenue has increased by 2%. The tax cut is often caused by reforms in neighboring countries. Tax changes in Eastern Europe have forced several Western European countries to adopt the same strategy to maintain the competitiveness of their companies.

How to explain the apparent paradox - charge less and receive more? "The best tax systems are the simplest," says Norbert Walker, chief economist at Deutsche Bank in Frankfurt. “The greater the sophistication, the more loopholes. And the more loopholes, the less revenue. ” To indefinitely sophisticate tax collection to anticipate all possible situations is to enter a cat and mouse race with the financial departments of numerous companies, always on the lookout for ways to pay less tax. The solution is to simplify and, at the same time, increase the number of contributors. Of course, talking is much easier than doing. The complex Brazilian political system confronts the interests of 27 states and, although everyone has to gain from the reform in the long term, due to increased revenue and the boost in economic activity, in the short term there are winners and losers - and nobody wants to be the loser from now.

Walker cites the examples of some Eastern European countries. In the transition from planned economies to market economies, beginning in 1990, these countries had to learn to collect taxes. Some, like the Slovak Republic, have ventured to apply a single rate. In 2004, the country reduced its entire federal tax system to three taxes: a tax on people's income, another on corporate profits and a Value Added Tax (VAT), similar to the Brazilian ICMS. All with a single rate of 19%. Creating a single tariff, since it is low, stimulates the migration of informal activities to the visible sector of the economy and makes inspection more efficient. "Only those who lost out were accountants and tax consultants, who no longer have a good source of income," says Walker. The changes have advanced, and the country is now studying unique rates for municipal taxes.

An average company in Brazil spends 2.600 hours with the tax authorities.
In Nigeria, 1.120. In Switzerland, only 63.

The World Bank's report clearly demonstrates that cascading sales taxes - like those in Brazil - are responsible for the high tax percentage in African countries like Gambia, South African Republic, Sierra Leone, Burundi and Mauritania. In comparative terms, companies in Sub-Saharan Africa, a part of the world whose development indicators no one envies, are burdened by the highest average tax burden in the world: 70% of their profits go to the government. The countries of Latin America and the Caribbean have the third highest average tax burden on the planet. In the region, income taxes are the most important component of corporate taxation.

Another conclusion of the World Bank study is that facilitating the taxpayer's life generates results. Companies in Belarus have to make 129 payments in the year, while the Swedish ones settle all their pending issues - Income Tax, Value Added Tax, Property Tax and labor contributions - using a single online form. It is not surprising that informality in Belarus is higher than in Sweden.

In this respect, Brazil is bad. Very bad. We are the country with the most bureaucracy in the world when it comes to paying taxes. According to Price's calculations, an average company spends 2.600 hours of work to meet the requirements of the tax authorities. In Nigeria, there are 1.120. In Switzerland, 63. Not only do taxes consume the efficiency of companies, the very time they drain translates into less productivity.

The tax calculation process is extremely complicated, which forces companies to keep employees exclusively dedicated to monitoring and complying with tax rules. Likewise, mandatory proof of tax regularity for obtaining loans, participation in tenders and requesting tax incentives increases bureaucracy and creates obstacles to business development. For this reason, the World Bank does not hesitate to advise Brazil to urgently carry out its tax reform. "Brazil is against the other countries," says a tax expert. “The tax reform proposal even advances in simplifying some taxes, but it does not seriously discuss reducing rates and expanding facilities for small businesses.”

The only commendable quote to Brazil in the World Bank report is for Simples. In this system, the country came close to what has been done abroad. By unifying several taxes and contributions into one tax, at a lower than average rate, the federal government managed to increase the number of formal retail companies by 13%. A myriad of bars, cafeterias and bakeries that operated without paying taxes - and that could not make simple decisions, such as opening a bank account and having access to credit - went to the formal side of the economy. And their employees were also able to be registered, which increased the inflow of funds into government accounts. Despite the success of this example, the expansion of Simples is not even under discussion in the main tax reform projects in the country, except as an invective without concrete proposals.


A market in Gambia. In several African countries, companies pay 70% of profits to the government. This discourages growth and encourages informality, making the collection meager

In addition to being complicated, the Brazilian tax system loses efficiency when compared to other countries. Let us analyze, for example, taxation for individuals in Brazil and the United States. In the Brazilian case, a large portion of the population is exempt from tax. In the United States, those who earn less than $ 12 a year - considered by some authors to be below the poverty line - will have to pay 10% Income Tax, without a deductible portion. This severity is mitigated by several investment incentives. "The taxpayer can deduct improvements in the house or the interest of a second house from the tax to be paid", says the American financial advisor Peter Sander, author of The Personal Finance Handbook, not released in Brazil. “Whoever starts a company can launch several expenses as a business and deduct them.” Comparing the two systems, says Sander, it is noted that the American taxpayer has much more incentive to create a company - generating jobs and income - than the Brazilian citizen. “The principle that governs this tax structure is that whoever starts a business must have community support, through tax relief in the first years of operation.” If the company thrives, the country and its citizens profit from it. This idea - letting people and companies prosper, and then collecting the aid given to them - is at the heart of the tax reform that Brazil needs.