Demand for tax reform is divided into tax cuts and social justice

Source: Midia Max News - Campo Grande / MS - 10/10/2010

Agência Brasil / PX

There is a strong demand from some sectors of society for the next government to resume the reform agenda, starting tax reform. The consensus, however, hides differences about which tax reform needs to be carried out.

For entrepreneurs, it is essential to try a reform that relieves economic activity, reduces the incidence of taxes in a cascade, allows more investments to be made and, supposedly, lowers the price of products, stimulating consumption.

In addition to this perspective, there are those who defend tax reform to promote more social justice. Critical economists in the national tax system point out that it is the poorest who pay proportionally more taxes than the richest.

“The system is pro-rich” points out economist Serguei Soares, from the Institute of Applied Economic Research (Ipea). According to him, it is necessary to think of “a system in which direct taxation is stronger than indirect taxation. It is direct taxation, for example, the Personal Income Tax (IRPF), the Property Tax and Urban Territorial (IPTU). Indirect taxes are added to the value of products consumed, taxes such as Tax on Circulation of Circulation of Goods and Provision of Services (ICMS) and the Tax on Industrial Product (IPI).

The realization of tax reform, however, comes up against the interests of collecting and distributing resources among the Union, states and municipalities; and in the ties between taxation and the financing of social policies, as is the case, for example, with the education salary that makes up the resources of the National Fund for the Development of Education (FNDE).

According to the political scientist and professor at the Getúlio Vargas Foundation (FGV), Cláudio Couto, not only in the Brazilian case, the tax reform is “stuck”. He recognizes “a bundle of interests” to do and not reform.

The political scientist, however, believes that it is possible that the next government will choose to make small reforms as were done in the FHC and Lula periods (Simples and Super Simples). “Punctual, simplification reforms can be made that result in cost reduction, such as reducing the bureaucracy required to pay taxes, with the hiring of accountants and lawyers”.