Source: Jornal do Commercio Brasil - RJ, 28/11/2008

President Luiz Inácio Lula da Silva submitted to the National Congress earlier this year, a Constitutional Amendment Proposal (PEC No. 233/08), to effect a Tax Reform, which, well inspired, had the following objectives: a) to simplify and make the system less bureaucratic, with a reduction in the number of taxes; b) increase formality in the economy; c) eliminate distortions, in order to reduce the cost of investments and exports; d) eliminate the “fiscal war” between the states, including the increase in investments and economic efficiency; e) increase tax relief, reducing costs for companies and consumers; f) perfect the regional development policy; and g) improve the quality of federative relations.

However, the project prepared by the Ministry of Finance did not faithfully reflect presidential recommendations. The bill extends the constitutional text too much, making it a regulation. In large part, PEC rules could be the subject of complementary and ordinary laws. PEC does not effectively reduce the tax burden. On the contrary, it must increase it. The new ICMS eliminates the 27 state legislations, but does not dispel the differences between States regarding taxation at origin or destination and assigns an excessive sum of powers to Confaz. PEC extinguishes four Social Contributions - Cofins, PIS, CSLL and Salário-Educação -, but, in truth, they are replaced by a new tax, the federal tax on operations with goods and services, the so-called “federal VAT”, increasing the tax burden on consumers.

In addition, PEC implements the Tax on Large Fortunes, of a confiscatory nature, but experience shows that, where this tax came into force, it mainly had the effect of stimulating tax evasion and the transfer of capital and other assets abroad, discouraging internal savings and create bureaucratic difficulties that lead to fraud and corruption.

The reduction, from 20% to 12%, in eight years, of the Employer's Social Security Contribution is another “deception”, as it will be compensated by federal VAT, levied on an expanded calculation base and by the authorization for the creation of other tax sources. The basis for calculating the social security contribution can only be the salary, especially when considering the future implementation of the capitalization regime.

The proposal underway in the Chamber of Deputies is clearly inopportune, disappointing and even managed to lower the quality of the original project, with the amendments that were added to it, becoming a “patchwork quilt”.

Under these conditions, the sensible decision of the Governors of São Paulo, Minas Gerais, Rio de Janeiro and Espírito Santo, followed by Governors of the Northeast, to suspend the progress of the Tax Reform, as stated in the Constitutional Amendment Proposal, deserves the most decisive support. - PEC nº 233/08 (nº 031 - Substitute for Rapporteur Sandro Mabel).

It is evident that, in the midst of the dramatic conjuncture of crisis in the financial system and the recession of the world economy, it is not possible to launch a broad tax reform, with the substitution of various taxes for others, with the introduction of new rules, new rates, new procedures accounting and administrative, new bureaucracy. In fact, the Proposal Rapporteur himself, the illustrious deputy Sandro Mabel ponders, in a substantial Opinion, that “tax reform does not match a scenario of economic instability”. This definition would be enough to propose the suspension of PEC No. 233/2008, as suggested by those most interested in smart tax reform, that is, businessmen and governors.

The governors' decision is in line with the prudence recommended by the current situation, which may be one of the biggest economic crises in the world, after the great recession of the 30s. Of course, this is not the time to propose radical changes in the national tax system, with the precipitation with which the matter has been treated by some sectors of the Ministry of Finance and also by the Chamber of Deputies. PEC nº 233/2008 is totally different from the two basic objectives that should guide any tax reform: the simplification of the complex and bureaucratic national system and the indispensable reduction of the tax burden, which is moving towards 40% of the national GDP, higher than that of many industrialized countries, such as the United States, and practically double that prevailing in the main emerging countries, which compete with Brazil in international markets.

For all these reasons, the National Confederation of Trade in Goods, Services and Tourism is fully in agreement with the opinion of Messrs. governors.