Single Tax

The Single Tax proposal would lead to the virtual elimination of tax evasion, fiscal corruption and the informal economy.


Author: Marcos Cintra

Source: Diário da Manhã (GO), 25/06/2009

A new contribution to the debate involving the tax reform in Brazil will be available from the second half of this year. This is the book Bank transactions: pathway to the ideal single tax, where I discuss the Brazilian tax structure and the country's experience with the CPMF. The study also covers fundamental aspects regarding the Single Tax on financial transactions and simulates its impact on the national economy compared to the current system.

The Single Tax is an idea that I have been studying since 1990. The project was approved by the Tax Reform Commission of the Chamber of Deputies and could be voted in plenary, if parliamentarians and the government so decided.

In general, the advantages of the Single Tax are numerous.

There will be enormous simplification and cost reduction in the collection of taxes. The benefit is not restricted only to the reduction of the government machinery, but also to companies, which today bear considerable expenses to meet the requirements of fiscal bookkeeping and other ancillary obligations. Workers would benefit from the growth in disposable income, which would occur because of the lower direct and indirect tax burden.

Tax collection would be made automatically with each debit and credit entry in the banking system. In every payment, the creditor account and the debtor account would be debited at a fixed percentage in the amount of the transaction. Thus, in any financial transaction made by means of checks or any other type of payment order, the system will transfer the collection product to the federal, state and municipal treasury account, according to predefined criteria. It would be an electronic, automatic tax.

The Single Tax proposal would entail the virtual elimination of evasion, fiscal corruption and the informal economy. The inspection would be restricted to the clearing systems of the banking sector.

The most significant thing about this project is that the tax rate may be low. In order for the Brazilian government - at its three levels - to collect about 27% of GDP, a burden referring only to taxes to be extinguished, and considering the volume of transactions carried out in the economy, it is estimated that the total rate of the Single Tax would be 5,62%, divided between the creditor and debtor parties in the transaction.

Thus, considering the low marginal rate, the incentive to evade would virtually disappear. Furthermore, this would become impossible, unless the transaction was carried out in currency or by barter. Evidently, in these two cases, the cost of tax evasion would be greater than its benefit - only 2,81% of the transaction -, which would completely discourage any attempt at tax fraud.

The proposal of the Single Tax, an old dream of economists for more than 300 years, finally becomes possible after the computer revolution. It is modern technology finally taking the stage in place of the artisanal tax systems still in use in the world.

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