Tax reform - Debate without people


Author: Antônio Machado - Brasil S / A

Source: Correio Braziliense, 02/12/2008

From the tax reform that is ready to be voted on in the plenary of the Chamber two things stand out: first, the theme is complex, arid and boring; second, taxes are the most invasive manifestation of state powers over society. Everyone speaks ill of the weight of the tax burden in the country, from 36% to 40% of GDP, according to the count, but nobody is organized to change this situation.

The opportunity would be now and, however, social participation is the least in the discussion of the reform, basically held only by deputies. This is the most fragile leg of a change that will profoundly affect the tax structure, equaling in terms of tax reform only with the major reform of 1966 - the framework of the current system. Nothing has been done with bold scope since. On the contrary, the news deteriorated the system.

What is being debated from a government project that incorporates proposals being processed in the Chamber is valid in terms of objectives (simplifying the heavy tax structure) and intentions (increasing the fluency of economic growth). But it is doubtful as to whether, in the long run, it will promote a reduction in taxes due to the efficiency of the collection system and the widening of the tax base. The trigger against the expansion of the tax burden seems to be loose.

Before the deputies decide in the vote the scope of the reform, which will still go through the same process in the Senate, the rationale would be to give wide dissemination to society, which never happened. The impression is that no one - not even President Lula, business associations and civil society entities - believed that it would go so far with such a lack of consensus, especially among governors.

For the reform, only one economist from the Ministry of Finance, Bernard Appy, spoke, who led the small group in charge of writing the proposal. Economic ministers have entered the debate now. Minister José Múcio Monteiro, who is the government's midfielder with Congress, had to be called on to ensure that Lula is interested in the House voting soon on the reform, if possible this year.

That's it, the elephant threatens to fly, without society knowing if it is interested in the reform, what it gains from it and, objectively, if the already absurd tax burden is at risk of becoming even greater.

Breath changes

Among the many changes, four are significant. One reduces the 27 state legislations of the ICMS to just one, wipes the myriad of rates to four or five and transfers from the state of origin to the destination the collection in interstate commerce. The ICMS rates on these transactions, currently 7% and 12%, would drop to 2% by 2016.

The other change of breath concerns the merger of Cofins, PIS, Cide and Salário-Educação in a new tax, Value Added Tax (IVA-Federal). The IPI was maintained, but its application would be restricted to beverages and tobacco and as an industrial and regional policy action. The Social Contribution on Net Income (CSLL) would be incorporated into corporate income tax. And the INSS employer's rate would drop from 20% to 14% on the basis of one percentage point per year.

Serra rejects everything

None of this is simple, even if the goals are worthwhile, such as the exemption from payroll to encourage formalization of employment, the end of the so-called “fiscal war” and the simplification of taxes. The poorest states, characters in the fiscal dispute, would receive support from a National Regional Development Fund (FNDR). Exporting states, which may suffer loss of revenue, the proposal establishes the Revenue Equalization Fund (FER).

São Paulo, potentially, is the most injured, which is why Governor José Serra endeavored to stop the reform. Formally, he claims that the global economic crisis is still poorly understood, creating uncertainties that make profound changes reckless. It's possible.

The blanket is short

Simulations on the impact of the reform assumed annual growth of 5% of GDP - and that is no longer safe for a couple of years.

The risk is that a deviation from the projected, however small, will undo the entire collection history. The government, moreover, is the big loser, since it assumes to compensate the losses of the states, therefore, of the municipalities as well. But the Federal Government is going to a three-year cycle of increased spending already contracted with installment readjustments of salaries for civil servants and pensions. The blanket is short.

Who guarantees what?

Serra says the devil lives in the details. The reform, for example, was conceived as an amendment to the Constitution, not by supplementary law - which dispenses with a two-thirds majority of Congress for approval. Subsequent adjustments will be more difficult. Substantive decisions, such as the new ICMS and VAT rates, were referred to complementary laws. The maximum that is defined is that 50,3% of the collection of IR, IPI and VAT will be linked to the base of 38,8% to Social Security, 6,7% to unemployment insurance and salary bonus (contemplating transfer to BNDES) , 2,3% to basic education and 2,5% to transport.

Furthermore: if such sharing is insufficient, it may be changed by a complementary law. Via tax increases? Someone has to clarify.