Author: Everardo Maciel

Source: ABC Polítiko - Brasília / DF - NEWS - 02/08/2010

Tax issues, in any country, are unavoidable themes of electoral campaigns, so they affect the level of extraction of resources in society and the ability of the State to provide investments, services and assistance to people.

In Brazil, the pièce de resistence of the tax debate has been tax reform - a magical expression that, in attempting to mitigate all problems, stimulates great hopes and inventiveness, while, unfortunately, it causes enormous frustrations. To understand this reversal of expectations, it is necessary to pay some attention to the nature of tax systems.

Tax models are inherently imperfect, because they result from political tensions, which do not necessarily reproduce abstract conceptions or doctrinal principles. Its complexity reflects the complexity of a country's political, economic and social relations structure. Moreover, taking into account that political tensions are permanent and focused, the tendency of each tax solution is to degrade over time.

The imperfection and complexity associated with the entropic trend and changing circumstances, which involve a given tax system, underlie the concept of reform as a permanent process and not as an isolated event. It is wrong, therefore, to expect “tax reform”, if it were not also a reason for recurring illusions.

Broadening the spectrum of tax reform simply means maximizing political tensions, with irreparably paralyzing effects. Major reforms only take place under exceptional conditions, verifiable, for example, in authoritarian regimes or in countries with no tax tradition. It was post-64 authoritarianism that made it possible, in Brazil, to implement the 1965-67 reform. The adoption, in Eastern Europe, of the flat tax, controversial and revolutionary income tax regime, only became viable because there is no tax tradition in the countries of that region.

In the same line of reasoning, it can be understood that the constitutional route is an extremely dangerous way to effect tax changes. The already excessive density of tax matters in the Constitution - indeed, an international record - produces endless demands and worrying legal uncertainty.

Constitutional changes have an extraordinary political cost. They also open space for the introduction of privileges or for raising the levels of complexity and disorganization of the tax system. This understanding is easily corroborated in all the changes made since the implementation of the 1965-67 reform. Today we have a system, at least conceptually, worse than what we had in that decade. By the way, considering an exclusive constituent assembly to reform the Brazilian tax system is a boldness that approaches irresponsibility.

The rupture of the Brazilian tax impasse must first understand the specifics of the demands for tax reform and their subsequent referral. States and municipalities wish to increase their participation in national public incomes; taxpayers, especially businessmen, aim to reduce the tax burden; finally, the experts agree on improving the quality of the system, even though there is no consensus as to what should be the object of this improvement. Taking care of these three themes, simultaneously, is sure to fail.

Discussions about income sharing between federal entities, due to their high political content, lead to debates on any other tax issue. Restructuring Brazilian fiscal federalism, including income discrimination and burden sharing, is an extremely sensitive matter and could only thrive on an exclusive basis.

The intention to reduce the tax burden leads to a debate about the nature of the Brazilian State and its charges. The mention that we have the highest tax burden among countries with the same degree of development never includes the finding that we also have the highest level of public spending. Addressing this issue implies dealing with general personnel policies, participation of the private sector in public investments, institution of mandatory parameters of efficiency in public administration, revision of assistance policies and, above all, construction of a consistent social security model. None of this is simple, as no expense is orphaned and will always be bravely justified by its beneficiaries, regardless of any valuation judgment.

The way to improve the quality of the tax system should be based on a methodology centered on solving priority problems, preferably through the infraconstitutional route. This agenda includes the elimination of the ICMS and ISS tax war, the reduction of credits accumulated in export operations, the establishment of tax reduction programs, the simplification of ICMS and PIS / Cofins, the disciplining of tax substitution, the decrease in the volatility of tax rules, the exemption from investments and the expansion of taxpayers' rights. As it turns out, it is not small, nor easy. It can, however, be a realistic path.
 

Everardo Maciel, former Federal Revenue Secretary