Event addresses the impacts of tax reform

Source: Artesp, 26/08/2005

The Brazilian Institute of Ethics in Competition – ETCO released the study “Macroeconomic, Regional and Sectorial Impacts of Tax Reform”, carried out in partnership with Fundação Getúlio Vargas (GV Consult).

One of the novelties of the document, presented to around 350 guests, on August 15, at Buffet Rosa Rosarum, in São Paulo, is a simulator with different rates and with the profile of the positive impacts of tax reform for the Union, the states and municipalities, as well as the negative repercussions of maintaining the current model or even of a partial reform of the system.

Another important survey pointed out in the document is that the productive sector is the most penalized by the high tax burden, which makes the Tax on Circulation of Goods and Services (ICMS) the base of the collection of the states.

In the presented balance, three alternative scenarios were developed for the reformulation of the ICMS rules. In the first, changes in rates are restricted; the second provides for a practically widespread increase in rates, considering the difficulty in accepting revenue losses by the states; and the third introduces a new rate distribution structure, obtaining an average nominal percentage of 10,7% of the consumer price (currently it is 11,5% of the consumer price).

As a result, in the first case, the effects would be very small on the Brazilian economy. The collection of taxes is almost unchanged and there is a small reduction in the level of activities without inflationary pressures. The most perverse effect was found in the simulation of the second scenario, of rate increases. The increase in taxation is followed by a significant drop in GDP and an increase in the impact of prices.

The best results are observed in the third scenario in which, without significant changes in the volume of ICMS collected in the country, the reform would decrease inflation, allowing significant economic growth.

It is noteworthy that the third alternative introduces greater variations in tax revenues between Brazilian regions, consequently containing greater potential for regional political conflicts. One of the solutions, according to ETCO, would be the establishment of policies and compensation funds. “With reduced rates, fewer entrepreneurs would take the risk of evading, which would reduce the harm that unfair competition brings. It would be interesting if our sector could also achieve a reduction in the rates ”, comments Luis Fernando Ferrari, president of Artesp, present at the event.

The complete analysis of the study is available on the ETCO website (Studies and Research).