Battles for tax simplification

The State of S. Paulo - 08/11/2011

By Everardo Maciel

The functionality and diversity of nature, as fascinating as they are almost inscrutable, are associated with the existence of a complex structure, in which the parts are in a continuous process of interaction. In view of the disproportionate limitation of human intelligence, its understanding requires the construction of models that simplify reality, in order to understand and interact with it, despite the risks of a simplistic modeling, detached from reality and often founded on philosophical or religious apriorisms. .

As the civilizing process progresses, social relations, in a broad sense, tend to be complex, although on an infinitely smaller scale compared to natural systems.

Steve Jobs's praise for genius underscored his obsession with creative simplicity. Apple's first advertising leaflet proclaimed, welcoming Leonardo da Vinci's famous phrase, that “simplicity is the ultimate sophistication”. Jobs added: “The simple can be more difficult than the complex. You have to work hard to come up with a clear thought and make it simple ”.

Tax systems correspond to State interventions - in meritorious thesis - in social relations, hence because they are geared towards complexity, when uncritically limited to replicate, within the scope of their object, more elaborate social relations.

The tax complexity is costly, inefficient, controversial and produces the darkness in which bureaucratism, which often includes administrative corruption, and the various forms of tax alchemy, according to tax evasion and tax avoidance.

The iniquity of complex systems was denounced by eminent contemporary tax experts, such as Klaus Tipke, Casalta Nabais, Richard Musgrave and Vito Tanzi. There is a widespread belief that the demand for simplification has become universal and that tax chaos is not owned by any country.

The tax reform of 1965 was an extraordinary exercise in simplification, by repairing - at least partially - the imperfections in the taxation of consumption, centralizing taxes on foreign trade in the Union and codifying tax matters, without neglecting improvements in tax administration.

Another example of a simplifying initiative was the Income Tax reform, undertaken in the second half of the 90s.

The elimination of monetary correction, for tax purposes, purged an aberration that made the Brazilian Income Tax legislation, in addition to being complex, extremely unfair, because it rewarded large companies, on a progressive scale, with the acceleration of the inflationary process.

The realization of the presumed profit, by raising the billing limits for the taxpayers' option and exemption in the distribution of results, eliminating a virtual double taxation, produced, uniquely, an increase in options and collection, constituting a solution that reconciled the interests of the Tax Authorities and the taxpayers .

The institution of Simples, in 1996, represented the most significant wave of formalization of micro and small companies in Brazil, despite all the deplorable bureaucratic restrictions on the constitution and disposal of companies, which still persist today. It even motivated the adoption of similar state models, such as Simples Paulista and Simples Candango.

The simplifying effort, however, faces successive obstacles. Often, the tax authorities seem to abhor simplicity. The taxpayer is seen, in this case, as an opponent. The more complex and obscure the legislation, the greater the dependence on the interpretation of the tax administration, highlighting the corporate strength.

Thus, from time to time the demand for indexing tax tables resurfaces, forgetting that this institute was one of the main responsible for inflation, which made Brazil unhappy for a long period.

Since 2002, the presumed profit option limit has not been revised. It is argued with a virtual loss of revenue, which does not correspond to the truth. Not once has this limit been raised has there been a decrease in revenue.

Projects that intend to establish new limits are being processed in the National Congress, including one by the current vice-president Michel Temer. Parliamentarians should not dismiss the matter from themselves.

It was a good intention to unify, at the federative level, the different simplified taxation regimes for micro and small companies, with the creation of Simples Nacional.

The merits of the institution of the Individual Microentrepreneur and the increase in the maximum gross revenue limits for inclusion in the regime are opposed to the complete ineptitude in relation to the simplification of the procedures for enrolling and discharging optors, the disconcerting and contradictory complexity in calculating the tax due and profusion of rules issued by the management committee.

Simplification needs to be inscribed on the Brazilian tax agenda on a permanent basis. It must not be forgotten that complexity is opportunistic and difficult to eradicate.

The inflationary fiscal adjustment

Source: Valor Econômico - 15/06/2011

By privileging the increase in tax collection instead of cutting expenses, the fiscal policy adopted by the government will not contribute to the anti-inflationary effort in 2011. In fact, the increase in the tax burden by 1,1 percentage point of the Gross Domestic Product ( GDP), forecast by the government itself, will fuel inflation. The emphasis on increasing revenues shows, in practice, authorities more interested in reducing public debt as a proportion of GDP than in helping to contain price escalation.

In 2010, the primary surplus of public accounts (excluding interest expenses and revenues from capitalization of Petrobras) was, within the federal government, 1,3% of GDP, the second lowest since 1999, when the country adopted the current economic policy tripod - surplus, floating exchange rate and inflation targets. In 2011, the goal is to increase the surplus to 2% of GDP.

Total Union revenues are expected to grow, according to official estimates, from 23% of GDP in 2010 to 24,1% of GDP this year. Transfers to states and municipalities are expected to jump, in turn, from 3,8% to 4,1% of GDP. Total expenditure is forecast to grow 0,1 percentage point of GDP in the period. Fiscal consolidation will therefore be carried out by increasing revenues and not cutting costs.

High tax burden should put pressure on the IPCA

This choice, maintains the chief economist of Credit Suisse bank, Nilson Teixeira, does not help the Central Bank (BC) to contain inflation. The increase in the tax burden reduces the level of activity and also the disposable income of families. In an environment of low competitiveness, the increase in taxes tends to be passed on, to a large extent, to consumers, putting pressure on inflation. The BC's response to this scenario is more interest.

If the adjustment option were to cut expenses, there would also be a negative impact on the level of activity, since lower government consumption would decrease aggregate demand. Through the demand channel, therefore, the effect on inflation would be negative. In view of this, the BC would operate with less need to increase the interest rate.

As the government opted for strong revenue growth, through the readjustment of tax rates such as IOF and IPI, and the near stability of expenses, the effect of the increase in tax collection on inflation will be greater than that of restraining public spending. “This is not only due to the relative magnitude of the variation in revenues being much higher than the variation in expenses. This result is also suggested by a broad empirical literature that points out that the multipliers associated with changes in taxation, in general, are much higher than those associated with changes in government expenditure to explain the dynamics of inflation, output and interest rates. ”, Explains the Credit Suisse economist.

Teixeira and his team carried out econometric exercises, based on the economic variables and the fiscal adjustment, and found that the fiscal policy will contribute 0,9 percentage points to the IPCA in 2011. It is, therefore, a different effect from that predicted by the Central Bank in its documents - the BC did not make public estimates of the impact of fiscal adjustment on inflation, but announced that, in its anti-inflationary strategy, it has met the target of a surplus of 2,9% of GDP (2% from the federal government) plus 0,9% of states and municipalities).

“In this context, the GDP growth rate accumulated in 2011 will be 0,4 percentage point lower than in the absence of the projected fiscal adjustment. At the same time, we expect a Selic, on average, 150 basis points higher, ”says Nilson Teixeira. For him, the government should promote this year the biggest increase in tax burden in recent years, making the contribution of fiscal policy to control inflation to be the most unfavorable since 2005.

If everything goes as planned, the fiscal effort will cause a reduction of 0,7 percentage point of GDP in the net public debt. The impact of fiscal policy on economic indicators (inflation, GDP and interest rates) should decrease this result, however, to 0,4 pp.

“In a context of low risk of fiscal insolvency and a strong need to control inflation, we believe that the benefit of this reduction in public debt does not outweigh the cost of an increase in inflation by 0,9 pp in the year. This result reinforces the assessment that the appropriate way to reduce the magnitude of the monetary tightening necessary to make inflation converge to the center of the target in 2012 would be through a fiscal policy with contraction of expenses as a proportion of GDP and not with an increase in tax burden ”, suggests Teixeira.

The problem is that containing expenses next year will not be easy. At the outset, the minimum wage will have an increase of about 14%, raising mandatory expenses such as social security and assistance benefits and unemployment insurance, items that account for about 45% of the total current expenditure. In addition, the political capital to continue to dampen the demands of civil servants for readjustments will be less and less.


Tax waiver of Simples can cost R $ 3,5 billion

Source: Brasil Econômico - 14/06/2011

This is the estimate of the drop in revenue with the change in the bands of micro and small companies.

The outcome of the negotiations to raise the revenue limits that accredit a company to benefit from the simplified tax regime, Simples, still depends on how much the government is willing to give up its revenues.

The first estimates point to a tax waiver of up to R $ 3,5 billion per year, if the economic team agrees to readjust the intermediate ranges to fit microentrepreneurs, microenterprises and small companies.

As the impact is high, the Ministry of Finance has put on the table two proposals to deputies and senators of the Mixed Parliamentary Front of Micro and Small Companies that will be discussed again with the Minister of Finance, Guido Mantega, next week.

The front president, Deputy Pepe Vargas (PT-RS), said that, in the first scenario, the government proposed to raise only the last range of gross sales, from R $ 2,4 million to R $ 3,6 million. In this case, the waiver would be R $ 1,5 billion.

The second hypothesis is to make a minor adjustment at all limits, reducing what is described in the project. With that, the readjustment of the upper band would go to R $ 3,2 million - an exit to reduce the waiver to less than R $ 2 billion annually.

According to the text that modifies the General Law of Micro and Small Companies, the limit of the annual gross revenue for the formalization of the Individual Entrepreneur (EI) rises from R $ 36 thousand to R $ 48 thousand. The intermediate range for entry into Simples Nacional rises from R $ 240 thousand to R $ 360 thousand and the latter, from R $ 2,4 million to R $ 3,6 million.

The president of Sebrae, Luiz Barreto, defends that the entire table of Simples be corrected, especially the first and second tracks. This is because it is in this interval that 70% of the beneficiaries are concentrated.

Tax slice

The new values ​​for inclusion in the Simples are one of the four “slices” of the Tax Reform that the Executive tries to approve this year. The bill (PL nº591 / 10), authored by the current executive secretary of the Ministry of Institutional Relations and former deputy, Cláudio Vignatti, has been in Congress since last year.

Technicians from the Ministry of Finance are still working on the calculations and variations of the tax waiver, since the expansion of the Simples coverage can be followed by a formalization process and, therefore, collection.

Export incentive

The point of consensus between the Executive and Parliament is to establish an incentive for micro and small companies to export more.

Thus, both parliamentarians and the Ministry of Finance, have already agreed to provide that the revenue that comes from sales of products and services to other countries does not fall into the framework.

Thus, if the ceiling rises to R $ 3,6 million, companies will be able to bill the same amount for their exports without leaving Simples.

Vargas says that although the project allows more activities to enter Simples, the government resists the inclusion of liberal professionals, such as doctors, lawyers and journalists.

"For us, it is important that there is a solution, but there is resistance".

The PL foresees the entrance of distilleries of spirits, wines, beers and artisanal liqueurs and areas of the service sector that do not benefit from Simples.


Government expands tax reform proposal after appeals from governors

Source: Jornal Brasil - 11/06/2011

After appeals from the governors, the government agreed to expand the tax reform proposal it plans to send to Congress at the beginning of the second half. Initially restricted to the reduction of the Interstate Goods and Services Circulation Tax (ICMS), now the discussion will extend to other issues. The Ministry of Finance, however, wants consensus among the states to avoid intensifying debates in Congress.

The topic with the greatest consensus within the economic team concerns the revision of the states' debt index. According to the executive secretary of the Ministry of Finance, Nelson Barbosa, Minister Guido Mantega admitted to including the subject in the tax reform. The concern of the economic team, however, is that the change would require the amendment of the Fiscal Responsibility Law (LRF).

"The minister showed himself willing to address this issue, as long as there is a commitment that this is the only point to be changed in the Fiscal Responsibility Law", said Barbosa last Tuesday (7) after meeting with governors of the North and the Midwest.

Currently, state debts are adjusted by the IGP-DI plus 6% or 7,5% per year, depending on the case. In times of high inflation, as in recent months, debts soar and compromise the investment capacity of state governments. The governors proposed the creation of a lock on the indexer. The correction would be limited to the Selic rate (basic interest on the economy), which corrects a large part of the federal public debt.

Another theme that must be included in the tax reform is the change in the distribution of the State Participation Fund, formed by federal taxes that the Union passes on to governors. Last year, the Federal Supreme Court (STF) considered the distribution criteria outdated and determined the replacement of the current rules until December 2012. Barbosa admitted that the new criteria may be included in the reform, as long as there is consensus between the states and the proposal which creates compensation funds for states that lose out on tax reform to be sent to Congress via a supplementary bill.

According to the economic team, most of the claims will have to be debated by the National Council for Farm Policy (Confaz), which brings together the finance secretaries of the 27 Federation units, to avoid disagreements in Congress. Among the points that will require agreement at Confaz are the regulation of electronic commerce and the validation of the tax incentives dropped by the Supreme Court about ten days ago.

Today, all the ICMS on goods purchased over the Internet remains with the states where the e-commerce pages are registered. The governors of the buying states want the tax to be shared, as is the case with automobiles. According to Barbosa, the issue can be resolved internally by Confaz, but the government can send a bill or provisional measure to Congress if states wish.

Only at two points did the government not yield to the governors. The interstate ICMS rate will not be differentiated between rich and poor states. The economic team also refused to include the redistribution of oil royalties and pre-salt income in the tax reform. "In fact, this issue is federative, but it has its own dynamics and is already being discussed in Congress," said Barbosa last week.


SP defends STF intervention in fiscal war

Source: O Estado de S. Paulo, 6/6/2011


Andrea Calabi, São Paulo State Finance Secretary

The Secretary of Finance of the State of São Paulo, Andrea Calabi, celebrated the decision of the Supreme Federal Court (SFT), which condemned laws that grant tax benefits in six states and the Federal District. He says the decision is a step towards ending the fiscal war.

Calabi is in favor of the federal government's proposal to promote a “sliced” tax reform, as long as the slices are substantial. The secretary defends the renegotiation of the debt of the States, even if it means changes in the Fiscal Responsibility Law, a political banner of the PSDB, party of the governor Geraldo Alckmin. Following are excerpts from the interview.

On Wednesday, the Supreme Court considered unconstitutional state laws that grant tax benefits to attract companies, including a São Paulo program. How did you react to that?

With joy and joy. I'm happy. I think it's an important decision about the fiscal war. There were several actions of unconstitutionality in the Supreme Federal Court, which had not been manifested. We are celebrating yesterday's decision, especially if the Supreme Court starts to decide the Adins (Unconstitutionality Actions) of the fiscal war between the states. This restores the rule of law and contributes to the solution of a problem that affects the economy, legal security and squanders public resources. In the case of São Paulo, the condemned law refers to a benefit given in 2007 to milk producers, but which had already been challenged in court by supermarkets.

But will the Supreme Court's decision have an effect in practice? States often reissue tax benefit laws with minor changes and the problem remains…

We, from São Paulo, do not play with the Supreme Court's decisions. We do. What has happened so far is that when states knew that the law was about to be judged, they went ahead and changed the wording. In this way, the action lost its object and there was no more judgment. This time, it was different. The spirit of a decision already taken by the Supreme Court cannot be circumvented.

So, the STF decision could be the end of the fiscal war?

Yes. It is a very important decision.

Is a solution via the Judiciary rather than a broad discussion of tax reform in Congress healthy?

The Legislative takes and does not. And it is not even the fault of the federal legislature. It is the states themselves that are unable to reach an agreement. Then the legal order comes and imposes an agreement.

In the Senate, a proposal is being made to end tax incentives for imports, reducing the ICMS tax on imports to zero. What is the position of São Paulo?

It is favorable. Today we have a strong appreciation of the real that stimulates imports and discourages exports, expressive Asian competition with prices unthinkable until another day, and a fiscal war that gives subsidies to imports. The three factors contribute to deindustrialization. It is in this sense that the government promoted this draft resolution in the Senate. São Paulo's proposal is not to zero the interstate ICMS on imports, but to reduce it to 4%. In this way, it maintains some gain for the importing State and prevents fraud from occurring.

This discussion is evolving towards a broader reform of the ICMS. Should we focus on the import fiscal war or is it necessary to broaden the debate?

When trying to discuss a small part, the discussion immediately expands to all interstate commerce and other discussions are brought to the table. States are beginning to wonder who wins and who loses. If we make a reform to collect ICMS at the destination, São Paulo would lose a lot, because it is a net exporter of goods. I am not against charging at the destination, because it is beneficial from the point of view of the fiscal war, but the impact is unbearable for the State of São Paulo.

How big is the loss for São Paulo?

If the ICMS tax rate drops to 4%, it is around R $ 5 billion per year. It is a quarter of what São Paulo intends to invest per year. So there has to be some compensation. All states will do similar accounts. There are some possible trade-offs. An example is the Kandir Law, which exempts exports, but determines a refund from the federal government to the States. Another possibility is to change the participation fund of States and municipalities. Political sharing took place, in which the South and Southeast receive 15% of the total and São Paulo, 1%. The Supreme Court declared the law unconstitutional and the need to reform it by the end of next year. Our proposal is that the constitution should be followed and a sharing index directly proportional to the population of the States and inversely proportional to income.
If that were done, what would be the new participation of São Paulo in the fund?
It would give something between 4% to 5% of the resources of the participation fund, which allocates the resources of the IPI, the IR (Income Tax) and other federal taxes. We are talking about R $ 1 billion per percentage point. Therefore, it would be an extra revenue for São Paulo of R $ 4 billion.

States are also including in this discussion the renegotiation of state debt. Are you favorable?

It is another form of compensation. Today we have states and city halls with their debt renegotiated with the Union paying interest indexed to the IGP (General Price Index) plus 9%. The São Paulo debt is renegotiated paying IGP plus 6%. Last year, this indicator closed at 12%. For some states, this meant 21% interest. Meanwhile, the federal government finances itself at a rate close to the Selic rate, which is currently 10% to 11%. In practice, states end up financing the Union. Governor Geraldo Alckmin finds this, of course, an injustice. At Confaz (National Council for Farm Policy), we are discussing a limitation of the financial cost of the debt to the equivalent to the Selic rate. All these discussions are rekindled when we are going to debate the state ICMS tax rates. It is almost spontaneous that they return to the scene.

It is a complete tax reform. Is it impossible to carry out a sliced ​​tax reform as proposed by the federal government?

No. The government's proposal to slice the reform is good, except that the slices are of a good size. It is as if you divide the cake into four parts. You will eat a slice of that size! It is difficult and takes time. For example: one slice is the ICMS, the other is the exemption from the payroll and its impacts on Social Security and the distribution of PIS / Confis. These are not trivial discussions. It requires commitment, dedication, public spirit and federative vision.

But by abandoning the initial proposal to discuss only the ICMS on imports, does the government run the risk of not deciding even that?

We are at risk, but one thing does not exclude the other. We can approve the change in the ICMS charged on imports and open the discussion on other topics. In Brazil, we have already faced more important challenges, such as stabilizing the economy. I am sure that we can face a tax reorganization that will increase competitiveness.

To renegotiate the debt of the States, it will be necessary to change the Fiscal Responsibility Law. How timely is it to change this law?

We are all very committed to maintaining the Fiscal Responsibility Law, including the clauses that have proved to be efficient and effective in the states' fiscal adjustment program. Everyone - federal, state and municipal governments - is cautious about this. It is a shared caution. If there is any necessary change, it is possible to do it by consensus and, instead of representing a loophole in the program, it will be an element to reinforce stabilization.

São Paulo will receive new investments from companies like Huyndai and Foxconn. Is the state offering benefits and entering the fiscal war?

The fiscal resources of São Paulo are to finance the budget, which ranges from payroll to large projects. The budget is not here to subsidize private companies. The main attractions of São Paulo are the size of the market, proximity to suppliers, lower transportation costs. In addition, we do have the possibility to provide some flexibility in tax financing, if necessary. In the case of Huyndai, the benefit granted is exemption from the purchase of capital goods, with the accelerated return of taxes paid.

What tax benefits is the state offering Foxconn?

Foxconn has a broad investment program, which reaches US $ 12 billion. It is a very interesting project, because it starts with high import coefficients, but gradually, due to the company's own strategy, it starts to internalize more production. São Paulo has infrastructure, ports, proximity to the market. The company also mentioned that it needs to hire around 5 engineers. Few regions are able to supply this volume of qualified labor. What the State can do is evaluate the external infrastructure that the company needs and work on providing it.


A trained economist, Andrea Calabi has been in charge of the São Paulo State Finance Department since December last year. Between 2003 and 2005, during the first term of Geraldo Alckmin, he was the holder of the Planning portfolio. Previously, during the government of Fernando Henrique Cardoso, Calabi was president of Banco do Brasil and National Bank for Economic and Social Development (BNDES). He was also assistant secretary to José Serra at the Ministry of Planning.


Farm defends interstate ICMS between 2% and 4%

Source: Estadão - São Paulo / SP, 18/05/2011

BRASÍLIA - The executive secretary of the Ministry of Finance, Nelson Barbosa, said today that the government would like the ICMS tax rate on interstate operations to be between 2% and 4% and that the transition period should not exceed eight years. "The rate and the term are negotiation criteria, but we think that a rate above 4% would bring a small benefit in relation to what we have today," he said.

In a meeting this afternoon with the Minister of Finance, Guido Mantega, the governors of the South and Southeast regions asked for higher rates, between 6% and 7%, and a transition period of up to 12 years. According to Barbosa, the transition period will depend on the conclusion of the analysis of the size of the measure's impact on the states' accounts.

Barbosa said that the Ministry of Finance is committed to evaluating the possibility of renegotiating the debt contracts between the States and the Union. “This is an important issue, because the index and the rate may be above what is on the market. There was an opening by the Ministry of Finance to perhaps include this proposal in the transition ”, he declared.

Governors think that the correction of contracts (today of IGP-DI plus 6% per year or IGP-DI plus 7,5% per year, depending on the contract) is very high and want to include the renegotiation of the debt in the discussion of reducing ICMS rate. Another proposal presented by the governors was to bring to the discussion of the tax reform the change in the distribution criteria of the State Participation Fund (FPE).

The Supreme Federal Court (STF) determined that a new regulation should be approved to take effect as of January 1, 2013. Barbosa stated that the Ministry of Finance understands that this is an “eminently state” discussion, but that if there is an agreement between the States, the federal government is not opposed.

The executive secretary of the Ministry of Finance said that if the proposal to compensate states that lose resources due to the drop in ICMS collection requires that a complementary law be sent to Congress, a resolution that resolves the problem of the division of FPE.


Tax myths

Source: The State of S. Paulo - 29/11/2010

Clóvis Panzarini - The State of S. Paulo

On the eve of the inauguration of the new government, the topic of tax reform is back on the agenda. More than ever, it is urgent, since the deleterious effects of the Brazilian tax asylum on competitiveness are now added to those of the exchange rate war, which is particularly serious for the products with greater added value, which have been losing representativeness in the export basket and inducing a dangerous deindustrialization process.

The Brazilian tax system, complex and inefficient, has its quality persistently deteriorated by the voracity of the Tax Authorities, unconcerned with principles of efficiency. The set of rules that make fiscal management costly and insecure, the taxation of investments and exports and the fiscal war are examples of distortions that compromise the competitiveness of the economy. But the debate on tax reform has been based on false premises that, repeated to exhaustion, become dogmas that distort the diagnosis of the problem. Some of them are considered here:

“The high tax burden compromises the competitiveness of the national productive sector.” It is obviously not the magnitude of the burden that offends competitiveness, but the quality of the taxes that make it up. A neutral tax model, prone to cumulativity, isonically burdens domestic and imported production and allows full exemption from exports. Therefore, it does not change relative prices.

"Tax reform should reduce the unbearable tax burden." Reforming the tax system does not imply reducing the burden, the magnitude of which is defined by the calibration of rates, established by ordinary law. The reform neither reduces the tax burden nor is it necessary to reduce it. In fact, the burden is variable and dependent: without cutting public spending, it is naive to call for a reduction in taxes. By the way, the elected government is already considering the possibility of recreating the CPMF.

"The elimination of some distortions of the ICMS, such as the taxation of capital goods and those of use and consumption, would undermine state finances." States could supply their cash needs through transparent and neutral rates, but they prefer to do so covertly, double-taxing inputs and capital goods. The break in the ICMS debt-credit chain, with the non-refund of the tax paid in the previous stages of the production chain - as with the goods for use and consumption - implies disrespect to the principle of non-cumulative, double taxation and spurious collection. The fact is that government officials do not want to face the political cost of practicing transparent rates. While the ICMS nominal rate is 18%, the effective charge may be 20% "inside" or 25%, if charged transparently, "outside".

"The destination principle will solve the problem of the accumulated ICMS credit, since the States will no longer have to return tax collected by another federated unit." The logic of the ICMS, in force since the institution of the ICM, in 1967, imposes the burden of returning the tax received by the sending State, due to the principle of non-cumulativity, even when it is consumed (transformed). or not) in its territory. Therefore, only the tax levied on the value added in its territory is collected, plus the one corresponding to the difference in the rate, if any. When the exit following the interstate purchase is not taxed, as in the case of exports, the difference in rate is negative. The burden of ICMS credit collected by another State is, of course, due to insufficient production of its own to supply its consumption and exports, and not because they are immune. On the other hand, the principle of destination in interstate transactions with collection at source, as the States want, will aggravate the process of accumulation of credit in untaxed exits - including exports -, since interstate purchases will be taxed at the rate internal.

"The diversity of rates is one of the factors responsible for the complexity of the system." This chant about the diversity of rates - of the ICMS or any other tax - comes, perhaps, from the distant time when the calculation of the tax due required lengthy arithmetic operations. It does not seem credible that the fact that rapadura and piano suffer different incidence of ICMS makes the tax system more complex. Especially because there is reasonable temporal stability in the rates applied. The profusion of rules edited daily (only the State of São Paulo has edited, on average, 33,5 acts per month in the last four years) is certainly much more costly to tax management than the fact that the rates of piano and rapadura be different.

Several other dogmas are accepted without reflection. In fact, the problems of the ICMS stem from the evident conflict between responsibility and tax jurisdiction of the States. While the Union is responsible for the competitiveness of the economy and for the balance of external accounts, the management of ICMS by the States always has a tax bias, albeit at the cost of serious offenses against the neutrality of the tax.


Delfim Netto rules out major tax reform

Source: Estadão - São Paulo / SP - 08/11/2010

SÃO PAULO - Professor and former Minister of Finance Antônio Delfim Netto said on Monday, 8, in São Paulo, that it is more important for society to "insist on small things", most of which are of an infra-constitutional nature, to make the reform viable. tax, which has been debated in the country for ten years and has so far not been approved. “It is no use imagining a major renovation. The destination ICMS (Tax on Circulation of Goods and Services) is essential, including to relieve exports. ”

Delfim Netto also defended the exemption of investments, due to the structural change of the tax order in Brazil, in order to stimulate the growth of the economy. According to him, it is possible that the operations reduce the “regressiveness” of the Brazilian tax system. "It is also a fundamental condition to give States a clear opportunity, which will help regional development," he commented.

“Such changes are not difficult”, since, according to Delfim Netto, most of them do not require changes to the Constitution. The professor and former Minister of Finance also mentioned that one of the elements that can collaborate for an agreement between the entities of the Federation in order to make tax reform viable in the short term.

Delfim Netto also pointed out that, in addition to the good conditions of the economy, the country is going through a favorable moment for the accomplishment of the tax reform for two other reasons. One is that the Federal Supreme Court (STF) has just decided on the State Participation Fund (FPE). Another important element is that now, in the country, there is a great debate about the distribution of royalties related to the extraction of oil from the pre-salt layer, which are extra resources that will help the National Treasury and the cashiers of the governments of the states and city halls . The former Minister of Finance spoke at the Industry Congress, promoted by Fiesp.