More reflections on tax mythology


Author: Everardo Maciel

Source: Noblat Blog, 10/04/2008

Its origins date back to the Sales and Consignments Tax (IVC). Despite its cumulative nature, with absolute ignorance of credits and debts, that tax, which preceded the ICM (today ICMS), was an instrument of fiscal war.

What did the IVC fiscal war consist of? The states of the Northeast did not comply with a regional agreement that provided for a single tax rate, through laws that provided for the granting of tax incentives. No illegality. Despite this, the conviction was formed that these incentives were predatory in nature. Mere fiscal waiver that, in the end, would erode the public revenues of those States.

ICM appears with the purpose, among others, of ending the ill-fated fiscal war. It was assumed, at the time, that the interstate nature of the ICM would imply controls between States, which would stop the fiscal war, in contrast to the IVC, whose incidence was localized and, therefore, did not generate repercussions beyond state borders. . Ledo mistake.

It was quickly realized that the ICM, as a value-added tax, instead of preventing the fiscal war, would produce contamination, whenever a State decided to unilaterally grant fiscal favors. The previously endemic fiscal war became epidemic.

To stop this wave of contagion, under the aegis of the military governments, “State Agreements” were conceived, whose observance was governed by the authoritarian character of those governments. No tax incentives would be admitted outside of what these agreements stipulate.

The Agreements ended by proclaiming the need to set general rules. It is in this context that Complementary Law No. 24, of January 7, 1975, is expressly accepted by the Constitution of 88. These are clear and very severe rules (exaggerated, perhaps), aiming to prevent the granting of any tax benefit, within the scope of the ICM , except in the cases admitted in the complementary law itself.

Until the end of the 80s, initiatives to circumvent those rules were rare. Since then, illegal, overt or hidden actions have intensified. The Judiciary has never definitively positioned itself on the matter, preferring an inconclusive stance; States never firmly assumed a repudiation of illegality, for political convenience or technical unpreparedness. The fiscal war triumphed.

But what is fiscal war? Is it the need for States, especially the poorest, to fight for private investment in their respective territories, or is it simply a case of mere breach of laws? The answer lies in the second hypothesis. It is just that the poorest states seek to attract investment. It is not fair, however, for them to do so in violation of the law. If the law is bad, change the law.

Here is an artificial solution to the issue of the ICMS tax war, based on the application of the destination principle. The doctrinal foundation of this principle is the assumption that taxes on consumption must be collected where the respective taxpayers reside. Being so obvious, one wonders: why was it not adopted in Brazil? On the one hand, because its adoption would amount to a huge incentive to tax evasion, due to the possibility of “converting” internal operations into interstates, since in this case the taxpayer would collect nothing from the treasury; on the other, because the distribution of the tax between origin and destination observes a general model of sharing public revenues between States, which includes the State Participation Fund and other compulsory transfers. Brazilian legislation prudently chose to share the collection of ICMS between origin and destination.

Now, a theory has been constructed that the fiscal war exists because the states that practice it do so at the expense of others, taking into account the existence of an interstate rate greater than zero. False. Tax war exists because laws are not observed. Those who defend this thesis forget that it existed at the time of the IVC, the cumulative nature of which would make the alleged possibility of interstate financing insubstantial.

The second proposal for “tax reform”, sent by the current government to the National Congress, is in error when trying to solve the fiscal war problem, partially introducing the principle of destiny with the fixing of an interstate rate of 2%. Harmful consequences of this proposal: it stimulates tax evasion, affects the balance in the interstate sharing of rents, deals through the constitutional way what could be accomplished by Senate resolution, hints at the possibility of raising the tax burden by creating a fund that would compensate the inevitable losses in the collection of the net exporting states and improperly fixed a tax rate in our so mistreated Constitution.

Wouldn't it be time to rethink the legislation that provides for ICMS tax incentives, in order to adjust it to new realities, and curb the fiscal war by observing the law? Or have we already given up the possibility of living in a country where the laws are respected?

Everardo Maciel is a former Federal Revenue Secretary.