Author: Andre Franco Montoro Filho

Source: Gazeta Mercantil, 26/12/2007

December 26, 2007 - It was regrettable that the necessary and desired reduction of the tax burden in Brazil was made through the extinction of the Provisional Contribution on Financial Transactions (CPMF).

Like any tax, the CPMF has advantages and disadvantages. But its advantages far outweigh its disadvantages, which, by the way, can be corrected through other taxes. CPMF's enormous advantages over other taxes are based on its extreme simplicity.

Because it is simple and collected automatically by banks, it has become a low cost collection and payment tax. It does not require filling out forms, verifying and keeping documents and does not give rise to legal disputes over its calculation basis.

In short, it requires much less bureaucracy and inspection. On the other hand, as the use of the banking system is practically universal, it is almost impossible to escape this tax. Tax evasion is negligible.
Additionally, the CPMF can be used as a control instrument to combat tax evasion. As the CPMF taxpayer is easily identifiable, the tax authorities can compare the payment of other taxes with the values ​​of financial transactions.

An alleged major disadvantage of the CPMF is that it falls on a cascade. It is paid in every financial transaction, with no discount on what was paid in other transactions in the same production chain.

There are two considerations to this criticism. The first is the reduced value of the rate, which is R $ 3,80 for every thousand reais in transactions. Even accumulating a few times this amount will not reach a portion of what is paid in ICMS.

For example: A single transaction of one thousand reais where the ICMS is levied, which is not imposed in a cascade, at a rate of 17%, imposes a tax obligation of R $ 170. There would have been 47 transactions of equal value for the total of taxes to be equal . This is completely out of reality, as it is estimated that in Brazil six transactions are carried out on average and with values ​​less than the final value.

The second aspect, which in my opinion is the most important, is that this deficiency of CPMF can be easily corrected. For example, what a natural person pays for CPMF could be considered as Income Tax paid in advance, as today with the tax withheld at source. This deduction does not add any bureaucracy to the taxpayer, banks and the IRS.
In the case of a legal entity, the amounts paid in CPMF could be deducted from the enormous social security obligations, which are a great stimulating element of informality and evasion. The tax evader, on the other hand, would have no way of reducing the amount paid for CPMF.

These examples show how it would have been possible to reduce the tax burden while preserving the CPMF. It is sad that this path, which the Brazilian Institute of Ethics in Competition (ETCO) defended, has not been followed by our parliamentarians, both from the situation and from the opposition. But we still hope that a more constructive dialogue is possible that will allow for significant improvements in our tax system. We lose a chance, but we must not lose hope.

There is, however, a highly positive aspect to this episode. As occurred on other occasions, both in the federal, as well as in the state and municipal areas, attempts by the executive powers to increase taxes were rejected by the respective legislative power, which heard the strong manifestation to the contrary from public opinion. This indicates that the current tax burden has already reached its upper limit.
This is a lesson that we must learn.

The necessary improvement in public services in Brazil, especially in health, education and security, cannot be achieved through tax increases, but through greater efficiency in the use of public resources. And this is possible, as was demonstrated by studies by the USP Economic Research Institute Foundation (Fipe) at USP, presented at a recent seminar organized by ETCO.

In practice, better management practices proved to be more important than more resources. This is the way we expect the federal government to adopt to compensate for the loss of the CPMF.

kicker: The deficiencies of the tax could have been corrected by discounting the IR

Andre Franco Montoro Filho - Executive President of the Brazilian Institute of Competition Ethics (ETCO)