Author: Marcos Cintra

Source: Correio Popular - SP, 23/01/2008

Understanding the confusing tax legislation in Brazil is a difficult task even for the most experienced tax experts. For the taxpayer it is a considerable risk factor, since any misinterpretation can indicate an indication of fraud for the tax authorities, exposing them to severe punishments.

Tax bureaucracy in Brazil is an increasingly resistant plague. The production of standards does not cease and makes the taxpayer's life hell. This is evident in a survey by the Brazilian Institute of Tax Planning (IBPT) showing that since the promulgation of the Federal Constitution in 1988, until 2007, almost 236 thousand tax rules in the country were edited at the three levels of government. This is equivalent to 50 new rules per business day. It is an insane proliferation of laws, decrees, provisional measures, amendments, complementary rules, among other legal instruments, which end up imposing heavy costs on taxpayers, especially for companies.

If the fiscal oppression that extracts about 36% of the income from the productive sector was not enough, companies in Brazil are forced to live with additional expenses to meet the accessory taxes imposed by the tax authorities. There are estimates that these “compliance costs”, as the specialized literature has been calling these charges imposed on taxpayers, may reach 5,82% of GDP, when considering this disbursement for publicly traded companies with annual gross revenue of up to R $ 100 million, a class that includes the vast majority of Brazilian companies.

Recently, the World Bank, in partnership with the consultancy Pricewaterhouse / Coopers, published a study comparing the time that companies spend to calculate taxes to be collected in 178 countries. Brazil was in the penultimate position because there is no information for Namibia. According to the report, a company subject to Brazilian tax legislation spends 2600 hours per year (equivalent to 108 days and eight hours) with bureaucracy at the three levels of government, while the world average is 1344 hours (equivalent to 56 days in the year). The tangle of tax laws in Brazil is clearly one of the obstacles when a company has to decide between investing here or in other countries that offer a simpler and cheaper structure.

The Brazilian tax structure as a whole is very bad, but there are taxes that are symbols of the chaos that prevails in the country. PIS and Cofins, for example, are contributions whose proliferation of regulatory rules and procedures has been dire since the critics of cumulativeness imposed the thesis that the solution would be to charge them on added value. The complexity of the legislation of these two taxes is so great that the technicians of the Federal Revenue have publicly recognized that they had difficulty understanding it when part of them started to be charged on the added value.

The absurd complexity and high cost of tax bureaucracy in Brazil represent a dead weight that needs to be removed from the country's productive structure. Huge time is wasted on interpreting laws and this is one of the obstacles to development. There is a huge waste of resources that could be channeled to generate more wealth.

Marcos Cintra Cavalcanti de Albuquerque holds a PhD in Economics from Harvard University (USA), full professor and vice president of Fundação Getulio Vargas.