Source: Brasil Econômico - 26/10/2010

Author: André Franco Montoro Filho

There is widespread consensus on the need for tax reform in Brazil. However, this consensus is misleading, as it does not discuss what should be changed, how to change, what is the viability of the change, who wins, who loses and what are the benefits.

It seems that tax reform is seen as a magic wand capable of resolving everything, just as, in the XNUMXth century, King Dom Sebastião's return was seen as the hope of Portugal's redemption.

For some, especially businessmen, tax reform is synonymous with reducing the tax burden. For others, governors, mayors, health doctors, tax reform is synonymous with more funds for states, municipalities or for health. There are also many people who are concerned about the regression of the tax system and want to increase taxes for the rich and reduce for the poor.

It should be noted that there is no tax system immune to criticism in the world, and Brazil is no exception. Complaints of high and unfair tax burden, lack of resources for local governments or for priority sectors are constant in the debates about tax systems “at any time and place”, without definitive conclusions being reached.

The most were compromise solutions. Looking for answers in economic theory doesn't help much either. There are many uncertainties about the economic and social effects of taxes that can even be antagonistic.

The optimal solution will depend on how society considers economic efficiency vis-à-vis social justice. In democratic societies, this is a political issue.

We are about to elect a new president. Would this be the right time then? Yes, but be careful with Sebastianism. Is it necessary to define what realistically pays to be reformed?

Comparing the Brazilian system with those of other countries, it appears that there is a serious problem that negatively distinguishes Brazil: it is the enormous bureaucracy to pay taxes. It is knowing what is right.

This is why the size of corporate tax departments in Brazil is much larger than in other countries and because it takes much more time to fulfill obligations, as shown by World Bank statistics.

This is because national tax rules are constantly changing. Laws change and interpretations change. In the tobacco sector, two changes per business day are computed. The STJ sets an understanding for years after the Supreme Court changes this interpretation.

Companies employ many people just to keep up with our changing legislation.

Our biggest problem being the excess of changes because we want more changes that would generate more controversies and legal uncertainty?

We must stop selling illusions. Comprehensive tax reform is only justified if its benefits are proven to be so significant as to offset the inevitable enormous costs of adaptation. Wouldn't it be better to propose specific, clear and simplifying changes?

André Franco Montoro Filho is executive president of the Brazilian Institute of Competition Ethics (Etco)