Author: Everardo Maciel

Source: Gazeta Mercantil, 27/11/2008

The ill-fated tax “reform” project, pending before the Chamber of Deputies, is an expanded reprint of old misunderstandings and myths. It insists on dealing with constitutional problems that could be resolved by infraconstitutional rules and adds matters that should never be included in the constitutional text.

The Brazilian Constitution often aims to be a regulation. Intends to discipline from interest rates to the mandatory retirement age of civil servants. The tax “reform” project reinforces this unusual characteristic, by fixing, among other aberrations, tax rates. It is clear that the space for thriving Lilliputian leadership is still immense.

Fiscal war is a theme that has supported recurrent crusades of hypocrisy, whose objectives are in general opposed to those that are proclaimed. This time, a poor explanation was added: tax wars only exist because of the possibility of transferring the respective tax benefits from one state to another, through the interstate ICMS rates. Based on this hypothesis, the destination principle is outlined, which consists of reducing interstate rates to zero. Those who defend this theoretical construction argue that there would no longer be a fiscal war because there would be a loss of interest by companies in granting the benefit. Ledo mistake. No state provides a tax incentive to harm others, but to take advantage of itself. No company claims tax favors solely because of the interstate market, just as it almost never refuses them.

The destiny principle is not a new thesis. It is necessary to investigate, however, the reasons why it was not accepted by the creators of the reform of the sixties, nor by those who succeeded them in the formulation of fiscal policy. Reducing the interstate tax rate to zero, as predicted by that principle, increases the propensity to withhold tax due to the great difference that will happen in relation to the tax rate on internal operations. These operations will easily “convert” into interstates. Do not say that instruments such as electronic invoices will be able to stop this propensity. The Spaniards remind us that “hecha la ley, hecha la trampa”. Tax evasion is an opportunistic phenomenon. When the advantage of illicit practice is great, no control is able to stop it. This is a known story.

Reduction to zero, on the other hand, transfers interest in taxpayers' interstate operations to the destination states, since they will in no way contribute to the home state. In such cases, the taxpayer may be subject to inspection by States in which he does not carry out activities. We will thus have ingeniously instituted, at the same time, the tourist activity in the tax administration and the tax hell for the taxpayers.

The adoption of the destination principle imposes, in interstate commerce, losses for net exporting states and gains for others. The winners will not even be grateful for the resources that, as economist Raul Velloso rightly points out, will be voraciously consumed by current expenses; losers will demand federal compensation to be financed ineluctably by increasing the tax burden. An endless dispute is also being built on the amount of these compensations, as has been the case with the Kandir Law, which takes care, among other aspects, to cover state losses as a result of exemption from exports of raw materials and semi-manufactured products.

The last victim of the destiny principle apostolate is the taxpayer who has a significant volume of interstate operations. Without debits to offset the credits constituted in internal operations, it will inevitably accumulate a mountain of credits without liquidity, in complete disagreement with the alleged non-cumulative ICMS. The idea of ​​recommending to these taxpayers that they seek monthly tax refunds from the tax offices to reimburse overpaid taxes can be described as dangerously naive.

Tax war exists because applicable law is not complied with - in this case, Complementary Law No. 24, 1975. It is true that these rules demand modernization. However, nothing that cannot be achieved through modest changes in the complementary law. Tax war is the legitimate daughter of illegality.
In order to “compensate” for the illegally practiced illegality, the substitute of the tax “reform” project proposes to create a regional development fund to be financed with an increase in the tax burden, to validate the incentives granted illegally and to preserve them (unless rejected by an absolute majority) States) and, finally, to extend the Manaus Free Trade Zone until 2033 (!), which in practice means to perpetuate benefits instituted by the military governments and constitutionalized in the 1988 Charter.

As I am still a devotee of rationality, I have not lost hope that the National Congress will protect us from this dismal tax “marolinha”.