Author: Lu Aiko Otta

Source: The State of S. Paulo - São Paulo / SP - 30/05/2010

Lu Aiko Otta / BRASILIA - The State of São Paulo

Unless a miracle happens, the government of Luiz Inácio Lula da Silva will end without the tax reform having been approved. Thus, Lula will have been the fourth president, in seven terms, to be defeated by the resistance of the Brazilian system of taxes and contributions established in the Constitution of 1988.

It is a set of rules that no one in the country thinks is ideal, but you cannot change it because there is no agreement. Whether the next president is going to break the spell is not known.

But the chances of promoting wide-ranging reform in the tax considered most problematic, the Tax on Circulation of Goods and Services (ICMS), which is the responsibility of the states, are reduced, in the opinion of specialists. It was in the discussions about the ICMS that all attempts to reform Brazilian taxes turned into an arm wrestle between units of the federation - and all fell into the impasse.

"I am not a believer in tax reform because it implies losses and gains, and nobody wants to lose," said consultant Clóvis Panzarini, a former tax coordinator at the São Paulo Finance Department. "The reform does not come out unless there is a very firm guarantee that there will be no losses in the States," confirmed the Secretary of Finance of Minas Gerais, Simão Cirineu.

Another incarnation. For former Federal Revenue Secretary Everardo Maciel, radically reforming the ICMS is a problem that has no solution, as governors will not give up revenues or the power to create policies through taxation. "The central conflict is federative, it is not something that can be resolved in this incarnation."

The three main pre-candidates for the Presidency of the Republic - Marina Silva (PV), Dilma Rousseff (PT) and José Serra (PSDB) - defend tax reform. For the time being, however, the topic is treated superficially.

Of the three, Dilma's speech is considered the most “novice”. According to what she said at the hearing promoted Tuesday at the National Confederation of Industry (CNI), she seems to have opted for the same strategy that has so often failed: a profound change in the ICMS, in what she called “reform of the reforms”, to be undertaken in the first few 100 days of your term. The proposal would require changing the Constitution, so it requires a solid political consensus to pass Congress.

In order to overcome the resistance of the States, Dilma defends the creation of a compensation fund - as predicted by Lula's proposal, which is stalled in the Legislative. Mistrust as to the functioning of the fund is one of the reasons why the proposal has not progressed.

She also promised to quickly return 100% of tax credits due to exporters, a problem that the current administration is unable to solve due to lack of money. Dilma did not explain how she will resolve this issue. The pre-candidate agreed with the CNI's suggestion to conduct specific changes in the infraconstitutional tax legislation in parallel with the reform. He made it clear, however, that he will prioritize constitutional reform.

"False expectations". Candidate Marina Silva defended tax reform at the CNI, but said she did not want to create “false expectations”, given the complexity of the discussion. For Marina, if modifying the tax system were easy, this would have already been done.

Considered the most specialized on the topic among the three, José Serra has been economical when talking about the reform. At CNI, he criticized the Brazilian tax burden, the largest among emerging countries, and attacked the government's proposal. According to people close to him, the toucan prefers to make specific adjustments rather than trying to reform the entire system at once. It is not known, however, if this is what he will propose if he is elected. The São Paulo experience in the administration of the ICMS may be the embryo of a reform to be implemented throughout the country under an eventual Serra government.

São Paulo concentrated the collection of ICMS on the manufacture of products. It is a way to reduce tax evasion, called tax substitution.

When the merchandise is sold abroad, the ICMS is collected in full at the producing end and part of the value is transferred to the consuming State, through agreements. It is a system that only works in the states that have already adopted the electronic invoice. Otherwise, there will always be mistrust as to whether what the State is receiving is what it owes.