Tax Reform: opinions


Author: ETCO

DEM will present amendment to ensure gradual reduction of tax burden

Valor Econômico, 05/03/2008

Democrats, the biggest opposition party to the Luiz Inácio Lula da Silva government in Congress, will try to include in the tax reform amendment or its infra-constitutional regulation a guarantee of gradual reduction of the burden in relation to the Gross Domestic Product (GDP). According to deputy Rodrigo Maia (RJ), national president of the DEM, this will be one of the main targets of the party's intervention in the reform text.

“Of course, there is a better limit to the load increase than none. But that is not enough ”, Maia said to Valor, referring to the willingness, announced the day before yesterday by the government, to anticipate the debate - and, if necessary, also the referral to Congress - of the complementary bill that will limit the impact of the replacement of some taxes on the collection volume of the Union and the States.

The proposal of the Ministry of Finance, whose draft will be known in the coming days, is to restrict the increase in the tax burden only in the year of implementation of the new taxes - 2010, in the federal case, and 2016, in the state case, in the event that the constitutional part the reform to be approved in 2008. The legal limitation mechanism would not be valid or verified either before or after; only even in the transition to the new tax system and, even so, only in relation to the universe of taxes involved in the substitution.

Maia explained that it is not in the DEM plans to create a permanent limit, neither for the level of the tax burden nor for its annual variation. What Democrats want is a device that is applied for a set period of time, but that is long enough to ensure a reduction in the volume of taxes in relation to GDP, without creating fiscal problems for the public administration. In the view of DEM, adds the deputy, the problem is not only the growth of the tax burden from now on, but also the level that it has already reached, “very high”, in his opinion.

According to the last official survey by the Federal Revenue, the collection of taxes by the Union, by States and by Municipalities totaled the equivalent of 34,23% of GDP in 2006, already considered the new way of calculating the product. This represented an increase in relation to 2002, when the tax burden was 31,86% of GDP.

The government also does not want to increase the burden, but, from the point of view of public accounts management, it thinks that it is not prudent to impose artificial limits, except when transitioning to new taxes. The secretary of Economic Policy of the Ministry of Finance, Bernard Appy, admits that, once the transition is made, the volume of taxes may grow again as a proportion of GDP, but due to the dynamism of the economy and not the increase in taxes, he explains.

According to Appy, economic studies show that the revenue growth rate anticipates the GDP trend. If, on the one hand, revenue grows faster than GDP when economic activity accelerates, on the other hand, it also decelerates more sharply than output when it falls. Given this behavior, he does not think it prudent to create limits for the tax burden as a proportion of GDP. Appy warns that, in times of economic boom, the country would be prevented from taking advantage of the “fat cows” phase to increase public investments or reduce public debt more sharply, with higher fiscal surpluses. And, in times of economic slowdown, the country would be compelled to raise taxes for companies and families, in a pro-cyclical and non-anti-cyclical movement as recommended. Maia, however, understands that, before worrying about this, the country needs to reduce its tax burden precisely to give more dynamism to the economy.

PSDB defends electronic invoice, single registration and change in Confaz

Ruy Baron / Valor - 18/12/2007
War (Value)Guerra: "How does the government want to approve tax reform in an election year and with this voluptuousness of MPs?"

Based on a proposal that is being prepared by the Senate Tax Reform Subcommittee, linked to the Economic Affairs Commission (CAE), the PSDB summit will defend three basic premises to vote in favor of any tax reform in the country: the implementation of the note electronic tax system, single taxpayer registry and the complete regulation of the National Tax Council - replacing the National Council for Farm Policy (Confaz), now integrated by the State Finance Secretaries.

These measures should be included in the report that Senator Francisco Dornelles (PP-RJ) will present to the members of the Senate subcommittee on the 25th. The subcommittee is chaired by Senator Tasso Jereissati (PSDB-CE), former president of his party. The proposal reported by Dornelles should include, among other measures, the incorporation of all indirect federal taxes plus the Tax on Circulation of Goods and Services (ICMS) in VAT (Value Added Tax), federal VAT legislation with collection and inspection of state governments and incorporation of the Net Social Contribution on Profit (CSLL) in the Income Tax.

The immediate adoption of the electronic invoice, the unification of the taxpayer register and the creation of the tax council - among other measures - were defended by deputy Luiz Paulo Vellozo Lucas (PSDB-ES), president of the Teotônio Vilela Institute (ITV), in a meeting with other members of the PSDB National Executive last Monday. They had been proposed by economist José Roberto Afonso, of the National Bank for Economic and Social Development (BNDES), in audience with the subcommittee. The PSDB decided to incorporate the proposals, according to the national president, Senator Sérgio Guerra (PE).

The PSDB also decided to present to the government Luiz Inácio Lula da Silva, as a condition for voting on the tax reform, the suspension of the edition of provisional measures in those months when the proposal is being processed in Congress. "How does the government want to approve tax reform in an election year and with this voluptuousness of MPs?" Asks Guerra. According to him, without the three assumptions cited and without the suspension of the edition of MPs, the tax reform will not proceed in Congress.

The PSDB president said that the position of toucan congressmen in the processing of the tax reform proposal sent by the government to Congress will have two "references": the work of the Senate subcommittee chaired by Tasso and the proposals of Vellozo Lucas.

According to the president of ITV, the electronic invoice would have a unique model throughout the country, with specifications of the taxes charged. "It would give the current system the transparency it does not have, because today the taxpayer does not know what he pays," said Vellozo Lucas.

With regard to the taxpayer registration, it would consist of only one number for the individual taxpayer and one for the legal entity. The National Tax Council, on the other hand, would be made up of representatives from the productive sector, from states and municipalities. "These are short-term measures, not to be implemented in the next government," says Vellozo Lucas.

The Tucano summit does not believe that the Luiz Inácio Lula da Silva government is really committed to approving tax reform. Guerra cites some signs, such as the fact that it included controversial measures, without a previous discussion with the governors. In addition, it is an electoral year - when work in the Legislature practically ends in the first semester - and there is a flood of MPs being sent by the government, locking up the voting list of the Chamber and the Senate.

The imperative of tax reform



Jornal do Brasil - Letters, 20/03/2008

The new tax reform proposal is already on the street, which provides for the unification of the ICMS and the creation of the Value Added Tax, VAT. This tax will replace PIS, Confins, CIDE and the education salary, but there are already proposals, such as that of Senator Francisco Dornelles (PP / RJ), which also extinguishes the IPI. The CSLL, Contribution on Net Income, will disappear and will be incorporated into the Income Tax of individuals. The ISS will be maintained. With these measures, there will be an extraordinary simplification of the national tax system ¬ today, we have 27 laws, which results in an increase in the cost of administering taxes ¬ with greater transparency for the taxpayer and efficiency gains.

The objective of the reform is not only the simplification of the system, but the end of the fiscal war between the States, with the unification of the ICMS, and the collection of the tax at the destination and not at the origin, as it happens today. Producing states, which fear losing revenue with the new form of tax collection, will be protected with a 2% rate.

The alterations, the studies indicate, will allow greater tax justice between States and stimulate regional development, with the creation of the National Fund for Regional Development ¬ will be R $ 9,5 billion per year ¬ exemption from capital goods, and, for finally, the search for a federal balance to compensate the losses of the States with the tax reform, through the creation of the Revenue Equalization Fund (R $ 3,5 billion per year).

The government is also studying the exemption from the employer's contribution payroll, reducing the rate from 20% to 14% in six years, in addition to changes in the Individual Income Tax, to mitigate the distortions that exist today and that particularly affect skilled workers and the middle class. According to technicians from the Ministry of Finance, there will be a general exemption of R $ 24 billion, that is, a net exemption of R $ 9 billion to R $ 14 billion, since the States will have an estimated gain between R $ 10 billion and R $ 15 billion.

It is necessary to highlight the courage of the federal government, which, even with the loss of revenue from the extinct CPMF (R $ 26 billion, since it managed to recover R $ 12 billion with the increase in the IOF and CSLL rate), maintained the decision to send to Congress the tax reform proposal, an old requirement of Brazilian society.

The government proposal, which was negotiated with governors and mayors, has everything to be approved, even though there are alternative proposals on the table. In addition to that presented by Senator Dornelles, the Party of the Republic defends the creation of a tax on debts and bank credits of 0,5%, therefore, of 1%, which it would collect, based on the 0,38% of the CPMF, about R $ 100 billion.

The governors of the states that produce energy, oil and minerals, in turn, want a special rate on these goods, which, with the reform, will be taxed at destination. And the PT is trying to include in the reform the taxation of large fortunes, the collection of which could also benefit states and municipalities.

The Tax on Large Fortunes entered the Constitution of 88 (art. 153), at the suggestion of the then senator Fernando Henrique Cardoso, but it was never regulated.

The important thing, when negotiating the tax reform proposal, is to quickly build a consensus, since there is growing awareness that Brazil urgently needs, even due to the international crisis that is ahead, to continue the reforms. Both tax and administrative, to improve public management and reduce bureaucracy.

Also as a shield against contamination by the crisis, the country must maintain and increase PAC investments in infrastructure and the PDE in education, and lower the financial costs of companies now, with the reduction of interest rates. In fact, the only way to face international competition and the appreciation of the real, in fact, the devaluation of the dollar. With the word, the opposition.


Other reflections on tax mythology


Gazeta Mercantil, 20/03/2008

March 20, 2008 - Giving way to the reflections that I have made on the vast field of myths that are formed around tax matters, today I intend to explore Brazilian compulsion through the constitutional way, as a way of implementing changes in tax legislation.

As is known, no constitution explores the tax issue as much as the Brazilian one. Our constitutional text includes everything from general principles to frankly technical rules, such as tax substitution, non-cumulativity, reduction of the calculation base, etc. Such distortion converts almost all tax controversies into issues subject to endless lawsuits, which invariably fall into the Supreme Federal Court (STF).
While the Supreme Court does not definitively elucidate the issue, those who have access to justice now have competitive advantages over their competitors, not to mention the legal uncertainty that inhibits investments and generates a climate conducive to corruption.

The tax model, instituted by the reform of the 1960s, showed some defects, the most notable of which was the state ownership of ICM. In it, however, one cannot fail to recognize the technical quality of the concepts, the internal consistency and the balance in terms of fiscal federalism.

The virtues of this model were gradually being undermined by successive constitutional changes, especially those resulting from the promulgation of the 1988 Constitution. There was a complete disarticulation in the federative balance. As a result, the Union was forced to broadly expand the domain of contributions not shared with subnational entities. This degenerative process, moreover, produced numerous conceptual ambiguities.

Experience has shown that any Constitutional Amendment Proposal (PEC) quickly becomes a matter of a teratological nature, as it contains demands of dubious origin, strengthened by the certainty that the enacted amendment is not subject to corrective vetoes.

Take, as an example, the first proposal for “tax reform”, sent to the National Congress, by the current government. The substitute is a veritable basket of cats, whose paternity no one else assumes.

The mere presentation of a proposed constitutional amendment already inaugurates a season of hunting for parliamentarians to present casuistry, which is flagrantly incongruous with the model presented. Furthermore, despite the excess of tax matters in the Constitution, parliamentary vocations to produce suppressive amendments in the constitutional text are not known.

On the part of the Executive Branch, the compulsion by the constitutional route finds support in the demand for “comprehensive” solutions, which it considers as poor solutions centered on problems or that operate through complementary or ordinary legislation. This fact can also be explained in the recurring mistake, which consists in assuming that the rule's effectiveness is inexorably due to its hierarchy. In this country, an ordinance is often more effective than a constitutional rule.

It is prudent to give up a solution constitutionally when an identical result can be obtained by means of a lower-ranking rule. The Constitution should not take on the air of a regulation that calls for continuous adaptations, with the enormous political costs inherent in these constitutional changes.

The PEC recently sent to Congress is, by default, in error in dealing with this instrument matters that could be the subject of infraconstitutional legislation.

It is not necessary to claim, as PEC intends, that the ICMS will have a single legislation. It would be enough to detail, as much as possible, the complementary law provided for in art. 155, § 2, XII, of the Constitution, in order to have, in practice, a single legislation, although provided in 27 laws.

Nor is there a need for a constitutional change to set interstate ICMS rates. The current Constitution includes this matter within the competence of the Federal Senate.

Bearing in mind that there is already an identity between the PIS and Cofins legislation and between those of the IRPJ and CSLL, unifying the respective collection documents - in short, this seems to be what is sought under the pretext of “simplifying” - is something that is resolved by means of a normative instruction from the Federal Revenue Service.
In PEC, in fact, there are issues that require constitutional treatment. Almost everything, however, results from the solution adopted.

The constitutional solution was preferred, more comfortable for those who present, less for operators of tax legislation. The reason still awaits more auspicious moments in the saga of the Brazilian “tax reform”.


kicker: The latest tax reform proposal is a veritable catwalk


EVERARDO MACIEL * - Tax consultant and former Federal Revenue Secretary. Next author's article on April 10

Tax reform

Ives Gandra Martins

The real tax reform would be one that implies a reduction in the tax burden. Improving the collection technique without reducing the load is not enough. And the tax burden will only fall with the reduction of the bureaucratic burden, which, unfortunately, under the Lula government, has grown alarmingly, with no counterpart in corresponding public services.

The government, however, presented its tax reform project, which includes the elimination of education wages, the reduction of social security contributions, over time, on labor; inclusion, in a single tax (VAT), of PIS, Cofins and Cides; sharing almost all federal taxes, as well as reducing the number of rates; and adoption of the destination principle, for ICMS.

The payroll exemption is a good sign, if the transfer of the tax to other taxes does not occur in a higher way. It is that, whenever the government adopts a new taxation technique, it raises the rates above the recommended, to guard against possible and eventual difficulties in the implantation of the new system. It is the so-called “comfort calibration”, which increased, for example, the collection of PIS and Cofins by 50%, when the non-cumulative technique was implemented. Unfortunately, the comfort calibration ends up being perpetuated, even when the expected losses are not verified.

On the other hand, the Union currently holds around 60% of the tax pie. If you have to share almost all taxes with states and municipalities, and you cannot give up the current revenue, the federal taxes will show an increase in the burden, compensating for what you will lose. And, certainly, it will adopt - what is a tradition in tax changes - the “comfort calibration” in setting the new rates.

The biggest problem, however, lies with the ICMS. The adoption of the destination regime, will imply losses for the “net exporting states” and gains for the “net importing states”, that is, a loss for the states that sell more than they buy from other states and a gain for the states that buy more than they sell.

Certainly, the States that are going to win will not reduce the weight of taxes and the States that will lose will have to increase the tax burden, with which, necessarily, the change in criteria will imply an increase in taxation. The creation of an “equalization fund”, as intended by the federal government, to compensate those who suffer losses, will require resources, which also signals an increase in the tax burden.

To avoid 27 state inspections on “exporting” companies, the government proposes a compensatory rate at the source of 2%. In the previous proposal, it was 4%. I believe that it would be fair to raise the rate for the State of origin.

In my view, a reasonable system for the ICMS would be the following: prohibition of any tax incentive, with respect to this tax, and adoption of the mixed system, which exists today, but with a lower number of rates, which would be identical for all interstate operations. By eliminating the fiscal stimulus and differentiated rates, the fiscal war would be eliminated. In the model I propose, even financial incentives would be prohibited, provided that the financing granted by States to taxpayers was linked to the ICMS component values.

I am very afraid that, although some reform measures are good, we will have a considerable increase in the tax burden and a bureaucratic increase for companies, which today already dedicate approximately 2.600 hours, on average, per year, to meet fiscal commitments. In Germany, only 105 are needed, and in Ireland, 76, according to a survey by the World Bank and Price Coopers covering 175 countries.

The challenge of tax reform is to create a lighter, fairer, simpler and more efficient system

Antonio Palocci Son


There is a new factor to encourage the present proposal for tax reform: Brazil is experiencing a period of growth that is proving to be lasting and consistent. And it is accompanied by a greater formalization of broad economic sectors - civil construction and slaughterhouses are the most eloquent examples -, resulting in a greater collection of taxes and contributions at all levels of government, at higher rates than itself. GDP growth. Certainly, this movement has limits, but it offers a window of opportunity to allow the natural adjustments of a reform as proposed by President Lula.

The possibility that the government submitted a proposal with few changes, but with ambitious objectives of simplification, modernization, correction of distortions and exemption from investments, contributes to this possibility. The most modern tax debates around the world have pointed out that the main objective of tax reforms must be the search for simplification. If we take the example of the ICMS, the most important tax in terms of collection, we see clearly how much our structure can be improved. There are 27 different laws, one for each state; a multitude of standards and dozens of different rates for the same products. It is a true library of laws and regulations relating to a single tax! This raises the cost for the tax authorities and for companies.

The proposal provides for a strong simplification of the ICMS, replacing the current laws and norms with a single law to be approved in the National Congress. The new VAT would be charged at the destination, leaving a small percentage at the source for purposes of stimulating the work of the local tax authorities. With this change, two major distortions that are hurting the economy today are corrected: the fiscal war and the accumulation of ICMS by exporting companies. This accumulation of credit has become a very high cost in the balance sheets of these companies. And, in practice, functioning as a real export tax.
In terms of federal taxes and contributions, strong simplification is also foreseen, with the merger of the Social Contribution on Net Profit with the Corporate Income Tax and the merger of the current contributions into a Federal VAT, with a clear definition of the portion intended for security. (health, Welfare and social assistance).

Simplifying the design of taxes allows greater reduction of tax evasion and less pressure on those who correctly pay their taxes.

By eliminating what remains of investment taxes, the project invests in common sense, as taxing the company before investing is one of the serious distortions that persist in our system.

The issue of regional development is also dealt with, placing a new emphasis on infrastructure investment for regions with less economic dynamism, although this issue still requires much debate.

Evidently, the current proposal is not a panacea. And there is nothing easier than criticizing any proposed tax reform. The complexity of the theme allows an unlimited number of opinions and creative proposals. But the moment demands that Congress concentrate on perfecting the Executive's proposal and dedicate this reform to society. The challenge is to create a lighter, fairer, simpler and more efficient system. A reform with this result will certainly prolong the current growth cycle and benefit future generations.


ANTONIO PALOCCI FILHO, former Minister of Finance, is a federal deputy (PT-SP) and will chair the special Chamber commission on tax reform.