Author: Ana Clara Costa

Source: VEJA On-line - São Paulo / SP - ECONOMY - 09/09/2010

Demand for electronics during the World Cup boosted retail

Cumulative tax dynamics only happen in Brazil, according to economist (Alexandre Battibugli)

Taxation of tax on tax is a Brazilian peculiarity. According to economist Isaías Coelho, senior professor at the Center for Tax Studies at the Faculty of Law of Fundação Getúlio Vargas (FGV), “this undesirable cumulativeness is uncommon in tax systems worldwide”.

The most emblematic example of this characteristic is given by the Tax on Circulation of Goods and Services (ICMS), regulated by the 1988 Constitution with the objective of taxing everything that is produced and traded in the national territory, as well as exports and imports. The tax, whose different rates are set by the states, is the most widespread and controversial in the country's tax structure. As it is present in all links of a productive chain, its collection occurs several times and, inevitably, leads to the collection of tax on tax (in cascade).

According to Coelho, this type of taxation follows a dynamic according to which all taxes created must be interconnected and affect the value of a product already with taxes - and not just its real value. “There is a culture of tax on tax in Brazil”, he declares. The ICMS, adds the economist, set the precedent. After him, several other taxes began to cascade.

ICMS also has the aggravating effect of levying other taxes, such as the Contribution to the Financing of Social Security (Cofins) and the Social Integration Program (PIS). A common example is the electricity bill. Instead of being calculated from the consumption value, ICMS uses the sum of consumption plus Cofins as the basis for calculation. The consumer account is, of course, more expensive.

For the specialist, in addition to reducing the rate of each tax (defended by many economists in the context of a tax reform), it would be important that all calculations be based on the real values ​​of goods and services. “This clarity in the rates would be the first step. The second would be the breakdown of how much taxes are paid on goods and services on all purchases, as in the United States, ”says Coelho. The economist refers to the fact that, in that country, the consumer is fully aware of the real value of the product and how much he pays tax - the amount is shown on all invoices issued. "It is an exercise in transparency that would improve the quality of taxation in Brazil," he says.