Source: The State of S. Paulo - 17/07/2010

In the first half, federal revenues, excluding social security, grew 17,38% at current prices and 11,82% in value deflated by the IPCA. It seems difficult that the GDP between two periods showed similar growth, which leads us to conclude that there was a further increase in the tax burden.

This is a normal development in a fast-growing economy, which makes it possible to distribute higher wages and increase corporate profits, but in this case, with a certain lag. It is interesting to analyze the evolution in the taxes that have greater weight in the collection.

Naturally, the Income Tax (IR) occupies a prominent place with a 26,66% share, and 29,72% in the same period in 2009. It could be concluded that the direct tax fell.

Is it necessary to interpret the data on income tax carefully, since they refer to different periods, and when it comes to legal entities and individuals? although in both cases there was a decline in participation. However, when it comes to withholding income tax, the situation is quite different: despite an increase in wages and the number of employees, the withholding tax falls from 8,19% to 7,72%.

Two taxes show an abnormal increase: the Contribution to the Financing of Social Security (Cofins), with an increase of 25,27%; and the Tax on Financial Operations (IOF), with an increase of 40,82%. In the first case, the Cofins payment was offset in the first six months of 2009; in the second, an increase to 2% in the settlement of foreign exchange operations for inflows of funds. In both cases there was the effect of improving the situation.

What is seen in the collection is the growing importance of indirect taxes, to the detriment of direct taxes, a situation that state taxes are aggravating. The two candidates with a chance of winning the October election speak of tax reform without clearly explaining, however, what they intend to present to Congress, and Lula paid little attention to the text of a reform that had positive aspects, although the reaction of the states seemed make it impossible.

In the context of an unreasonable political-electoral disruption of public expenditure, the government is unlikely to consider proposing any reform that could, in the first instance, reduce revenues. Most likely, we will have to live with an outdated tax policy and source of the loss of competitiveness of Brazilian products.