The weight of tax chaos


Source: Exame, 15/08/2005

In Brazil, there is more than one tax change per hour, a world record. Exclusive research shows that companies spend 12 billion dollars a year to stay in this crazy race.

By Alexa Salomão and Giuliana Napolitano

THAT THE TAX LOAD IN BRAZIL has passed the bill and turned into a disadvantage in competition with other emerging countries is nothing new. While here the State swallows almost 0% of GDP in taxes, contributions. and taxes consumed by the gears of public machinery in Chile. a 38% tax burden has almost eradicated illiteracy, reduced poverty and is still able to finance public works. It is also not a novelty that a reform project is born every so often in the government. the accounts are done. ends up representing another weight on the backs of companies. A survey by Fundação Getulio Vargas made to order by the Brazilian Institute of Ethics in Competition (Etco), obtained exclusively by EXAME, shows the disaster that would represent an increase in the ICMS in the tax reform that is going through Congress. If the average ICMS rate went from 17.3% to 11,5%, about 13,6 million jobs would disappear and the country's economy would lose 4 billion reais a year. A disastrous result, to say the least. "The companies would no longer support an increase in the load." says Emerson Kapaz, president of Etco. More taxes mean more work and more money spent to serve the tax authorities. Few times, however, it is possible to see in detail the absurd contours that the tax burden represents in the daily life of Brazilian companies. Another study. conducted by PricewaterhouseCoopers and also obtained first hand. assessed the tax department of 83 large consumer and retail companies in Brazil and 74 multinationals in the sector in 211 other countries. The result is a portrait of how the increased burden and tax bureaucracy has turned the business routine into a chaotic environment, full of pitfalls.
Brazilian companies spend no less than 12 billion dollars a year just to maintain their tax department - almost four times the international average. While in a good part of the planet it is necessary to have one employee in the tax area for each billion dollars billed. in Brazil, 29 are needed. “Tax legislation has transferred the obligation to collect taxes to companies - a responsibility of the State”, says Luis Reis, Price's tax consultant. "To meet this task, companies have increased the structure and costs of their tax department." And if swelling affects companies in all sectors. Medtronic, a manufacturer of medical and hospital equipment and products with annual revenues of US $ 9 billion, has 30 employees in the American headquarters - and only 000% work in the tax department. No factories. the Brazilian operation employs 0,2 people - 50% of them deal exclusively with tax operations.
At the holding company Rezende Barbosa - controller of Nova América, owner of the União sugar brand -, it is necessary to manage the payment of almost 200 different types of taxes, fees and contributions. This consumes about 30% of revenue. “The bleeding is great,” says Alberto Asato, the group's superintendent. According to the FGV survey. in some industries - such as textiles, fuels and automobiles -. the weight of taxes reaches 50% of net sales. There is an overhead even for software companies that provide tax services. "Brazil is the country where adapting tax programs takes more work, because the legislation changes a lot," says Meva Su Duran. product director of the Brazilian subsidiary of SAP. “Here we maintain a team of ten people to look after 580 customers. In Mexico, there is only one person responsible for 400 customers. ” Omc1e lives in a similar situation. "In Brazil. we have changes in the programs every month ”. says Elisabete Waller. consulting director of the company in São Paulo. “The world average is one change every six or eight months, at most:
Too many people and too much work, in the first place. to handle the bureaucracy. According to Price's survey, in other countries, about 57% of the cost of the tax department covers trivial operations. filling out forms and checking standards. In Brazil, paperwork care consumes 74% of the budget. To worsen. this does not guarantee that the job will be complete. Most tax officers are sure of that. even paying all taxes on time. if you edit a detail when filling out a form - however small and foolish - you will be punished by the Lion. "The main concern is to comply with the tax authorities". says Pedro Henrique Fernandes. tax manager at Kraft. one of the main food manufacturers in the country. "Even if we do everything right, we run the risk of being fined."
About 70% of Kraft's 50 tax employees in Brazil don't even go near the headquarters' offices in Curitiba. They stay outside the factories and in the group's distribution centers just to check out.