"Fiscal balance challenges lawmakers"

Taxation and a sustainable economy presuppose adequate taxation. It cannot be very low, to allow the financial health of the State, and it cannot be high, to the point of stifling the economy and making business impossible. With this explanation, Phelippe Toledo Pires de Oliveira, deputy attorney general of the National Treasury, summed up the State's challenges in developing policies conducive to business development in the country during the Taxation seminar in Brazil. For him, reflecting on whether the tax bases are correct and whether they can be improved is of great relevance to the national scenario.

According to data from the latest study conducted by the Federal Revenue, in 2017, taxation in Brazil is based on consumption and the payroll. The rate on equity is less than 5%, while the rate on income is less than 20%, on consumption it is 48% and the one on payroll is 26%.

- Complexity is inherent to our tax system. It is complex because we have different tax types in the Brazilian system: taxes, fees, improvement contributions, compulsory loans. And each of these species still has its own taxes: Income Tax, contribution on the payroll, etc. Being complex, however, does not mean that it cannot be simplified.
For Oliveira, the challenges are great, and this is a great time for this discussion. To illustrate, he explains that the country currently has about 6 million tax foreclosures per year, only within the Union. There are approximately 1 million taxpayer lawsuits against the federal tax administration. The Deputy Attorney General recognizes that it is necessary to think about specific changes to simplify the system and reduce litigation. However, one must be careful not to generate other unwanted occurrences.

- The end of the dividend exemption, for example, while bringing a benefit to end the discussion of disguised distribution of profits, also generated the phenomenon of "Pejotização" to pay less taxes. The individual who would receive that income taxed at a higher percentage creates a Legal Entity to be taxed at a lower percentage.
Oliveira also highlighted points such as the reduction of the rates as a condition for the broadening of the bases. Despite the fact that tax benefits exist worldwide, it is necessary to question whether they are fulfilling the purpose
should comply.
- The moment is to bring up these discussions, which until then were not very common in the tax sphere, but unusual among society.
Regarding tax reform, Oliveira says that the government's intention is to discuss the proposals and make the best of each one to arrive at a solution that is viable and reasonable for tax simplification.
- The desirable reform, in my opinion, is one that respects the federal pact, promotes simplification
and respect the fundamental rights and guarantees of the taxpayer.

History in Brazil is of great misunderstandings

In his explanation at the Taxation seminar in Brazil, tax attorney Everardo Maciel, former secretary of the Federal Revenue Service, brought up contemporary tax issues, both in Brazil and in the world - and the main differences in approaches in these scenarios. When it comes to the Brazilian situation, Maciel points out that this is a point of enormous social rejection, and that is why it is easy to find many hasty conclusions on the subject. Among the highlights, he points out the belief that foreign models can be easily reproduced here, without taking into account legal aspects of our reality. The fact that many professionals affirm that the tax system is extremely complex is also a belief that, according to him, needs to be analyzed.
- Complexity is inherent in the system. It needs to be operable and not simple. There are 27 ICMS laws, for example, and you need to have that, because the tax is state. But in general everyone is very similar to each other, except in special situations.

Among the main tax problems in Brazil today, the expert highlights points such as excessive litigation and bureaucracy - however, always stressing that this is a problem with the tax process and not with the tax itself. Therefore, solutions such as joining ICMS and ISS are considered simplistic. - They are different taxes, with different destination. How is the federative issue? How is all the jurisprudence that exists around this? It is like throwing dirty water with the child in the basin. Is that what you want to do? Or is there a lack of willingness to think about it and find solutions with some degree of creativity? The tax collector recovered the history of tax reforms that have already taken place in Brazil and assessed the trajectory as being more mistaken than correct. In his opinion, most interventions carried out after 1965 can be classified as disastrous. And the Constitutional Amendment Proposal 45, known as the PEC for tax reform, follows the same line of mistakes.

According to Maciel, there are currently three major tax issues being discussed in various locations around the world: the erosion of tax bases; the taxation of the digital economy; and new sources of social security financing.
- The transfer of capital and the taxation of profits from countries with higher taxation to countries with lower taxation or without taxation, tax havens, is something that bothers everyone - he highlights.
The taxation of the digital economy, a highlight in this scenario, draws attention mainly for the creation of the GAFAM tax - currently under discussion in countries like France and the United Kingdom. It is an initiative of local governments to tax the big technology companies: Google, Apple, Facebook, Amazon and Microsoft. He also talks about the possibility of taxing financial transactions and robots as a way of financing social security.

Smuggling is an evil to be fought

The fight against the illegal market that took over the country and expectations regarding the tax review were the main issues addressed by the federal deputy and president of the Mixed Parliamentary Front to Combat Smuggling and Counterfeiting, Efraim Filho, at the Taxation seminar in Brazil.

For the deputy, the productive sector needs to be prioritized and be able to maintain his business. “The problems are not circumstantial, they are structural. In the country there is a rule to make life easier for the State, the collection, but not to collaborate with the taxpayer. It is necessary to value those who create jobs and offer opportunities. ”

We are failing to collect taxes and create jobs. Smuggling is extremely harmful to society.
He questioned the fact that the cigarette sector, for example, has almost 60% of the illegal market. “We are failing to collect taxes and generate jobs. Smuggling is extremely harmful to society. ”

According to Efraim Filho, society is tolerant of small deviations, but when investigating, it is possible to see that the illegal market finances organized crime, generates foreign exchange evasion, loss of revenue, in addition to damaging the formal labor market and offering a product without registration or control by Anvisa. “It is a game of lose lose. Smuggling inhibits business and needs to be combated. ”

For him, during the period when the country's economy was growing, smuggling was not combated properly and was established. However, in times of crisis, increasing losses have been a cause for concern for Brazilian companies.

ROLE OF THE CONGRESS
According to the deputy, despite the challenges, there is fertile ground to advance the discussion on tax reform. For Efraim Filho, the role that Congress assumed in pension reform should be repeated in this agenda. He says the intention is that the productive sector, the Federal Revenue and the government give their opinions so that the proposal has legitimacy.

"We have a chosen president and rapporteur, the special tax reform commission is installed, but public hearings must take place so that the most diverse sectors can be heard." According to Efraim Filho, the great challenge of tax reform is not to change the law, but to change the country's culture. “Our role is to lead the renewal process and keep our hands out for those who want to collaborate.”

For the deputy, Congress is open to receiving suggestions and making a really new proposal possible. According to him, parliamentarians need to accept opinions on the matter and call the responsibility to advance reform. “In the Temer government, the discussion that took place in the special tax reform commission left the legacy of a more mature debate. The diagnosis, therefore, is already ready. Now the focus must be on the approval of the materials. ”

"We don't need to unify taxes"

For the doctor and professor of Tax Law Roberto Quiroga Mosquera, the ideal would be for less drastic changes to be made than those currently being discussed by the government. He believes that one way is not to focus on tax unification.

“It is no use just joining the taxes that already exist and putting a different name for them” - says Mosquera. As an example, he cites the so-called excise taxes, taxes on specific products such as fuels, tobacco and energy. “We already have our IPI (Tax on Industrialized Products). It is a selective tax, which represents less than 5% of the collection, but which already takes the place of excise taxes. There is no need, therefore, to change this tax. ”

For him, taxation alone will not be enough to change the situation in Brazil. “Currently, R $ 1,4 trillion of federal taxes are collected, 80% of which are levied on income and revenue. It would hardly be possible to raise so many resources otherwise. With only 5% of the population earning more than R $ 4 thousand, it is difficult to transfer taxes in an economy that is stagnant. It is necessary to have an economic change so that taxation can follow it. ”

CONTENTIOUS TAX
Another difficulty is tax litigation, litigation between companies and the tax authorities. According to Mosquera, there are about 15 thousand companies in this situation, which will end in a discussion in the Judiciary with a ten-year term and a decapitalization of the company, which can generate a major macroeconomic problem.
“And today it is not easy to discuss a tax issue within the federal court. Judges demand guarantees, and that is costly for a company. ”According to Mosquera, the tax rule has to adapt to the country's economic factors.
“There is no use for a magic rule to solve the economic problem. It is the substrate of the tax issue. Of course, it will impact business, but that means she is not the savior of the country. We need to change the economy a lot to have a tax rule that is really efficient. ”
For Mosquera, it is necessary to create specific solutions for the country and not have principles based on parameters from abroad.

“What to do so that there is no more cigarette smuggling in Brazil? Eventually companies that manufacture premium cigarettes may produce other products to compete with the tax evader. You need to know the Brazilian reality to find the best solutions. ”
As alternatives for greater efficiency in Brazilian taxation, Mosquera points to small reforms, which can be much more assertive. “I find it difficult for the merger of taxes at the federal, state and municipal levels to be accepted. But taxing fate and not origin is an interesting idea. And sometimes, a value added tax, thinking about public finances, may be the most correct. ”

Tax review is crucial for the country

"We have to recognize that there is something very wrong with our economy, because the world is growing and getting rich, but Brazil is not." The statement was made by economist and president of Insper, Marcos Lisboa, during the Taxation in Brazil seminar, held by the newspaper VALOR ECONÔMICO in partnership with the Brazilian Institute of Competition Ethics (ETCO), on Tuesday, July 23, in São Paulo. Paulo. The event brought together renowned experts to discuss how the tax review can contribute to Brazil's growth.

“The tax regime directly affects economic decisions and investments made in Brazil. It is crucial that we discuss tax change, as it will largely contribute to the country's growth. ” For the economist, there is already an agenda of tax micro-reforms that the Secretary of Finance can put into practice.

"First, it is necessary to correct this tax discrepancy, adjust foreign trade and end the insecurity regarding investment in infrastructure" - says Lisbon, arguing that the tax rules together with industrial and education policies are the most important factors for the
countries' growth.

CORPORATE TAX
One way for the economy to develop, according to Lisbon, is to promote the internationalization of companies. But, for that, he explains, Brazil needs to do like the countries that reduced the corporate tax to about 20%. Today, Brazilian companies are not as competitive and have less growth. It also highlights that it is necessary to have greater clarity regarding infrastructure works to attract more investments, which can also contribute to the recovery of the economy.

Lisbon defends the value added tax (VAT), which is the most used in the world and can be applied in Brazil. Through it, taxation is made on the amount sold and all taxes that were paid before are discounted. Regarding the CPMF, the economist has his reservations and says that it increases the demand for currency, reduces the supply of credit and generates less growth in the industry.

The Taxation seminar in Brazil was held at the Tomie Ohtake Institute. In addition to Marcos Lisboa, tax attorney Everardo Maciel, former secretary of the IRS; Edson Vismona, president of ETCO and the National Forum Against Piracy and Illegality; Phelippe Toledo Pires de Oliveira, Deputy Attorney General of the National Treasury; Roberto Quiroga Mosquera, doctor and master in Tax Law; and Efraim Filho, federal deputy. The mediation was carried out by journalist Samy Dana, a columnist for the financial education website Valor Investe and a professor at the School of Business Administration at Fundação Getúlio Vargas (FGV).

The main highlights of the experts' discussions were the challenges of a change in taxation that would bring gains for both the State and taxpayers and provide for national development. The speakers also explained the reasons why the current tax system favors illegality and smuggling in the country, enabling the consolidation of persistent debtors.

Illegality advances and funds violence

A system of taxation with unclear criteria, numerous obstacles to the tax regularization of companies and endless lawsuits have been fertile ground for the growth of the illegal market in the country.
Smugglers and regular debtors - those who create formal companies but do not pay taxes - take advantage of these shortcomings to attract consumers at low prices, but offer products of criminal origin that are unregistered and do not follow the rules of regulatory agencies. In the case of cigarettes, the illicit trade is already greater than the legal market.

For the executive president of the Brazilian Institute of Ethics in Competition (ETCO), Edson Luiz Vismona, Brazil is at a crucial moment to discuss the tax system and the consequent advance of smuggling and piracy. Highlights that
illegality is a direct beneficiary of this chaotic system and argues that it is necessary to discuss taxation now to guarantee a strong and secure economy in the future.

Why is it so important to discuss taxation at this point?
We are discussing the very survival of our companies and the necessary stimulus for Brazilian development. When we talk about taxation, we are talking about what our future will be. Whether we are going to stimulate entrepreneurship, the generation of investments, jobs or we are going to continue carrying a wasteful state in which the productive sectors are already at the maximum level of support for that state.

What is the most important point to change this scenario?
When we talk about taxation, the first thing that comes to mind is to lower the tax. But, for that, the only answer is to reduce the waste of public money. The state needs to be more efficient, more effective in the use and administration of public resources. Today what stimulates us a lot are immediate responses. During the presidential election campaign, ETCO presented candidates with a document on taxation and development.
Our proposal is to make rapid progress in simplifying, reducing bureaucracy and seeking mediation in the payment of taxes. The Brazilian tax liability is immense, we estimate it to be R $ 3,3 trillion. Are tax payments being discussed in court? This is what is being discussed in the courts and in administrative proceedings. There must be actions aimed at speeding up the collection of these resources and regularizing the fiscal situation of many companies. Our tax liability is perhaps half of GDP, which is absurd.

What are the biggest bottlenecks in the tax process?
It does not serve the debtor who wants to pay or the creditor who wants to receive. We have to reduce the margin of subjectivity in imposing fines, as this is unacceptable. You have companies today that are paying taxes that they shouldn't, but, due to the imposition of fines and even threats to lead to criminal complaints, the company ends up paying, to later discuss in court. We have to talk about tax compliance and other initiatives that can be done quickly.

What is needed to make fines and collections more transparent?
Clear criteria. It is necessary to facilitate the understanding of the current legislation, which is chaotic. Accessory obligations are an example of this. I don't think even the Treasury knows how many ancillary obligations there are. We are putting so many things into the Brazilian tax structure that it was incomprehensible.

Do you advocate that the country discuss broad tax reform or occasional adjustments?
The clamor is for a new tax system. The hard part is: what system is this? In the Civil War, Abraham Lincoln told the generals: "If you come across a swamp, don't go into the swamp." That's how I see tax reform. One says the calculation is wrong, another says it will increase the tax, another says it will make a series of sectors unfeasible and nobody wants to lose. For this reason, we defend starting with what can be done now: on the one hand, simplification, rationalization of tax regimes, red tape, reform of the tax process, clear rules and respect for the taxpayer; on the other, it combats the persistent debtor who is structured not to pay taxes. These are points that must be considered. So, I think we will have practical effects more quickly.

How does this chaotic tax situation favor the illegal market?
You see the other side of the force. On the one hand, those who want to pay tax encounter difficulties. On the other hand, anyone who is determined not to pay tax finds support in the chaos of the tax system. We call these hard debtors. The person has a business structure so as not to pay tax. Illegality perverts competition, harms the consumer and burdens the Treasury. It is a direct beneficiary of this chaotic system. We are in the worst of worlds: discouraging those who create jobs and investing in those who pervert this sense of development. The typical example of this, in addition to fuel and beverages, where you have structures designed to not pay tax, is cigarettes. The Brazilian market is being increasingly dominated by smugglers.

Do the figures already indicate an illegal market bigger than the legal one for cigarettes?
Smuggling is 49% of the market, and the debtor is 5%. 54% do not pay tax. The whole Brazilian policy to combat smoking is going down the drain. The policy of increasing the tax and reducing consumption has lost all its effect. The contraband will say: "Very good, it can increase, because that's where I win". This is true for other sectors. In the case of cigarettes, the tax rate ranges from 71% to 90%, depending on the state's ICMS. In Paraguay, it is 18%. This is the photograph. The smuggler pays 18% in Paraguay and does not pay anything here, where he offers cigarettes at very low prices, less than half the cost of the legal product. In March, the government announced measures against the illegal market, one of which was the study of reducing cigarette taxation.

Has this initiative gone ahead?
A group formed by government agents was created, I have no information on how this work is going, but we have some suggestions to make. We who want to fight smuggling - and I am not talking about cigarettes, I am talking about smuggling - defend an action related to this demand. Our proposal is to keep the tax burden high, but to scale it better. For more expensive brands, which serve the public with greater purchasing power and who will not migrate to a product without any control and quality like smuggled goods, the tax may be increased. And, for a more popular category, lower the tax. You can have a more competitive product to take the smuggling market out. The low-income population pays R $ 2 to R $ 3 for the smuggled product. And you are not going to buy a legal product that costs at least R $ 5. You need a brand of confrontation, which would pay less tax. They say that we want to increase the consumption of the national industry. No, I want to reduce the consumption of smuggling that is only growing and the margin that the smuggler has today to use in crime It is an economic equation. Smuggling is free.

In relation to supply, is the path to border repression?
The Ministry of Justice's proposal addresses a fundamental point in which we believe: the integration and coordination of operations at the borders, not to pick up trucks, but, rather, distributors, warehouses and large operators. We also suggest working on roads with integrated operations. The São Paulo City Hall has created a committee to combat illegal trade that is breaking all seizure records, in a coordinated action with the Federal Revenue Service and the Civil Police. Another front is international. We have tried to encourage Paraguay to increase the tax on its cigarettes, but so far we have achieved nothing. Paraguayan cigarettes remain one of the cheapest in the world because they pay very low taxes.

Do we already have practical results from these actions?
Look at what an interesting situation we have come to. Recently, five illegal cigarette factories in Brazil were closed, falsifying the leading brand, that is, the smuggled cigarette. They were Brazilian factories forging Paraguayan brands, with labor from Paraguay. Another thing we always say: smuggled cigarettes finances organized crime, as it offers high liquidity, profitability and low risk. The Civil Police closed a factory in the interior of São Paulo where the criminal organization was falsifying cigarettes not to sell, but to distribute in prisons, as an instrument of power.

How can we show society that, in addition to the economic impact, there is a social and also a health consequence?
This is where another issue of demand comes from, which I call ethical incoherence. This smuggled cigarette consumer is funding organized crime. But he complains about corruption and crime. On the one hand, he criticizes and, on the other, he finances. "If I'm taking advantage, what's the harm?" You are an instrument of piracy and you are happy. Your ethical filter ends in your pocket. There is no developed country that does not defend ethics and the law. How is the cigarette market in the country? The legal market is going down the drain. Four years ago, we had 30% of illegality. Society and government looked and thought it was bearable. It jumped to 54%. And we know that the perspective is that it can reach 60%, a percentage that already exists in some states. How long will it grow? Today, tax evasion is already higher than tax revenue. The collection last year was R $ 11,4 billion, and evasion, R $ 11,5 billion.
The smuggler is R $ 100 million ahead of the collection.