Competitiveness and taxes in Brazil


Author: Marcos Cintra

Source: Jornal do Brasil - RJ - 15/10/2009

Brazil advanced eight positions in the ranking of the most competitive economies in the world. According to the latest annual survey prepared by the World Economic Forum, the country now occupies the 56th position in a list of 133 countries.

Brazil has improved its position due to its innovative business, the size of its market and economic stability.

But it still lags behind countries like South Africa, Chile, Thailand, India and China because of excessive government regulations, corruption, mistrust of politicians, waste of public money, poor customs system and low education. But the most vexing situation occupied by Brazil is the last place in the tax system item.

The high tax burden, the complexity and the high cost related to compliance with tax rules limit the performance of the Brazilian economy.

These problems could already have been addressed satisfactorily, since the country has been discussing tax reform for 20 years and, instead of improving the structure, it deteriorates more and more. Brazil is hostage to a conservative fiscal view that makes what is bad even worse.

The country still sees the imposition of value added taxes as a viable alternative, while Europe lives with serious problems of fraud in its VAT and the United States never dared to embark on this type of tax. In Brazil, we transformed part of the PIS / Cofins into VAT, and the structure was worse than it was.

The way out of a tax reform that reduces the tax burden and administrative costs for companies, and also combats tax evasion, is the institution of the Single Tax on financial transactions. Through it, taxes of a tax nature would be eliminated at the three levels of government, which represent 27% of GDP, and in its place there would be a tax of 2,81% on the debits and credits of each entry in bank current accounts. The taxes that would remain refer to social security contributions paid by workers and other insured persons, to regulations (ITR and foreign trade) and to workers' savings (FGTS and PIS).

An in-depth study on the effects of a Single Tax on financial transactions on the Brazilian economy can be obtained in a recent book I released in the United States entitled Bank transactions: pathway to the ideal single tax (available in It contains simulations of the impacts of this tax model, compared to the conventional system, on the prices of 110 products.

The comparison between a Single Tax with a rate of 2,81% (necessary to collect 27% of GDP) and a traditional model with the ICMS, IPI, ISS and employer's INSS (which represent 10,86% of GDP) shows that the model of the financial movement would imply a sharp drop in the sectorial tax burden, with beneficial effects on prices and real wages. The average reduction would be of the order of 50,5%, being the smallest in public services (-33,2%) and the largest in medical-hospital, measurement and optical devices (-68,4%).

The Single Tax is the most viable alternative to improve the country's competitiveness in the tax area. It is a project that simplifies the system, combats tax evasion and reduces the tax burden for all taxpayers without the government losing resources.

The Single Tax is the most viable alternative to improve competitiveness

Marcos Cintra holds a doctorate in economics from Harvard University (USA), full professor and vice president of Fundação Getulio Vargas (