The journey of tax reform

Finally, we approved the tax reform, aiming to overcome old problems that affect our economic growth. We will move from an old system to a new one, starting the regulation and implementation of the general measures of Constitutional Amendment 132. The time has come to begin our journey — scheduled for ten years — towards the promised land in search of GDP growth, tax equity, neutrality fiscal, simplification, transparency, de-bureaucratization, modernization of taxes, redistribution of revenue between federative entities, reduction of tax evasion, collection at destination, changes in income tax, end of the cascade effect.

We begin a long journey, and the old and the new will coexist in the transition.

On this journey there will be a debate on dozens of complementary laws, detailing more than 70 points that must be regulated through government proposals to Parliament.

The definition of tax rates; who will pay and to whom; exceptions with lower rates; what will be the administration of the system and the interaction between the federative entities; the collection, inspection and distribution of taxes by the Management Committee that will be created; compensation mechanisms between states and municipalities; procedural standards and definition of selective tax are some of the important topics that will spark many disputes and generate great movement throughout society, with in-depth technical discussions in the legal, auditing and accounting sectors.

We will face the divergence between those who rightly defend the necessary balance of public accounts and those who do not agree with spending cuts, creating a conflict that will affect the size of the tax burden.

In the corporate environment, there will be conflicts between productive sectors to define which activities will be more or less burdened and how the criteria for the incidence of the Selective Tax will be established. And we still have to guarantee taxpayers' rights, reduce trillion-dollar tax litigation, combat tax evasion and the growth of the illegal market, issues that must necessarily be directly included in these debates.

Faced with so many matters that must be scrutinized, and knowing that “God or the devil are in the details”, the time has come to decide whether we will take advantage of or lose this historic opportunity to finally improve our tax system.

It certainly won't be a smooth crossing. We will have to part seas, face bad advisors and deep conflicts of interest, accept structural changes and so, without Moses to guide us, we have to move forward.

Get out of speech and take action. Our destiny depends on us getting the right direction and overcoming archaic structures that hinder our economic and social development. In truth, we need to move away from what Roberto Campos said: “Brazil does not miss the opportunity to miss an opportunity.”


Tax policy must be based on the concept of a broad moratorium

The very exceptional circumstance that humanity is experiencing is an obstacle to reflections that allow us to understand the present time and produce some type of contribution. Our ignorance, impotence, anguish and fear prevail.

Apparently eating a wild animal infected by a virus was able to stop the world and cause suffering on a global scale. The real expression of an allegory of the Butterfly Effect, extracted from Chaos Theory, has never been so painful: “a butterfly flaps its wings in Beijing and produces an earthquake in San Francisco”.

Exploring the origins and spread of Covid-19 should only serve to understand the pandemic and support the development of prevention theories. Blaming people or governments is completely useless, if not a symptom of mental alienation. It would also promote unforgivable injustices.

The pandemic has complex and probably unverifiable causality, in the light of current science. The virus has no nationality. The problem is with humanity.

This picture brings out the intrinsically contradictory human nature, in which the selfishness associated with the survival instinct and solidarity, generosity and opportunism - often, delinquent - coexist, good and evil coexist. The hope is that the spirits of people of good will prevail.

I participated actively in the face of serious international and domestic economic crises, in the FHC Government. I know how much serenity, determination and creativity were required to overcome them. Well, none of them even touches the intensity, scope, unpredictability and persistence of the crisis arising from Covid-19.

From this confrontation, I extracted some lessons that can be of some use, even though punctual and modest in the face of a cyclopic crisis.

I risk, by imposition of solidarity, humbly subjecting them to debate. I do not intend to be right, but help in the limit of my knowledge and experience.

We are facing a catastrophe with equivalent consequences, mutatis mutandis, collision with an asteroid, a natural disaster on a planetary scale or a nuclear accident. It is not reasonable to deny the scale of the catastrophe. What is needed is to hope for the best, but prepare for the worst.

The suggestions are limited to the tax field, which, in the context, is merely subsidiary, since what counts as a priority, at the moment, is to save people, especially the sick, the vulnerable and the poor.

The first lesson to be observed is the flexibility of recommendation, creativity and collaboration.

I collect Charles Darwin's praise for flexibility in nature, translated into the ability to adapt, and which, at least in circumstances of extreme crisis, also applies to public management, including taxation: “It is not the strongest that survives, not the most intelligent, but the one that best adapts to changes ”.

Those responsible for tax policy cannot become prisoners of manuals, of no use in crisis situations. It is necessary to use creativity at the limit.

It would be tedious and useless to enumerate the creativity exercises practiced in crisis coping experiences that I lived. What was done was often unprecedented, not even raised in literature.

In the current crisis, the need for creativity is much higher. Dialogue, discuss problems thoroughly and do not stick to pre-existing models. It is the advice I can give to those on the front lines.

Collaboration is also an indispensable ingredient. Not only among federal entities, it is necessary to reach out to private tax professionals and taxpayers.

The second lesson concerns the imperative need to segregate the initiatives to face the crisis from those that will be adopted in the post-crisis. Trying to articulate these two classes of initiatives is to flirt with crucial mistakes.

Although it seems unsubstantiated, from the perspective of physics, the crisis has paralyzed time. This is fundamental evidence. It is as if there is only the present. Nothing more is known about the future.

Anyone who projects the future is wrong, based on pre-existing knowledge about interest rates, foreign exchange, GDP, fiscal balance, asset values, prices, etc.

What if an effective vaccine or treatment comes along? What if, in a scenario of greater misfortune, new waves of the virus or its mutation appear?

Since there is a minimum of civilization, humanity has never been compelled to social isolation for a period that no one can estimate.

When we leave these caves, as are we, physically and psychically? How will the world be? Will we renegotiate relations with the environment worldwide, including in terms of urban occupation and prevention of natural disasters? Will we come to understand that tackling poverty requires everyone's competition, regardless of the jurisdictions of the states? Will severe health barriers be put in place for the transit of people and goods, to the detriment of globalization? Will the current consumption patterns yield to the essentiality thesis? Will limits on growth be imposed, as the Club of Rome has been advocating since 1972? Will there be a digital revolution in work and service provision, with repercussions on urban mobility, international transport, entertainment, tourism? How will the public health policies?

There are many questions, the answers of which, however, no one knows. Most likely, we have a new normal.

In how long and for how long, however, will the new normal prevail, considering the atavistic tendency of the human being to erase from memory everything that is pain and interdiction of pleasure?

The only certainty we have is that these are times of complete uncertainty. In this context, absolute caution is the only rational option.

In a wise lesson, John Maynard Keynes pointed out, in the “Treaty on Monetary Reform” (1923): “The long term is a misleading guide to current affairs. In the long run, we will all be dead. Economists put themselves in a comfort zone, totally useless, if in stormy seasons they can only say that when the storm passes, the ocean will calm down again ”.

It is, therefore, imperative to concentrate all efforts to overcome the crisis at the present time, removing deviations in concentration resulting from speculations about the future.

If the demand for flexibility, creativity and collaboration prevails and if there is a conviction for mindfulness in the present, tax policy must be based on the concept of a broad moratorium, provided for in our legal system.

The National Tax Code (CTN), arts. 151-155, provides the moratorium hypothesis, with ample operational flexibility: general or individual, specification or not taxes or sectors, federal or national scope, applicability or not to certain regions, etc.

Anyway, it is a proper instrument for calamity situations, whose flexibility, however, does not exclude the imposition of penalties for cases of fraud or simulation, in its own favor or that of third parties.

The choice of terms, sectors or taxes includes discretionary acts based on tax morality, which requires firmness and discernment.

The moratorium establishes the rule of law, as opposed to a scenario, not unfeasible, of civil disobedience.

The moratorium must, however, go further to achieve processes and procedures as well. For them, time also stopped.

Should be suspended, while the pandemic lasts, administrative judgments, official releases, losses (except for cases of contraband or practices that tend to make sanitary policies unfeasible), collection of active debt, requirement of accessory obligations, procedural deadlines, etc. Negative certificates must be extended for an equal period.

The Union must set an example and call for the adoption of measures by all federal entities. In this movement there can be no concession to bureaucratic mentalities, which do not see the scale of the catastrophe.

Ordinance No. 543, dated 20.03.2020, of the Federal Revenue of Brazil partially accepts the recommendations regarding the procedural and procedural moratorium. However, more boldness is needed, including regarding the moratorium on taxes. Also, remove the pretension of launches regarding the controversial prevention of decay and the presumption of fraudulent interposition of people.

It is not the time for controversy. Nor is it the time to harass taxpayers in the midst of economic debate. At least, for humanitarian reasons. It is now up to us to fight for survival.

Six views on tax reform

Gather different views on the problems of the current tax system and the changes needed to fix or replace it. This was the objective of the Taxation in Brazil seminar, held in partnership with ETCO and the Valor Econômico newspaper in July, in São Paulo. The event had contributions from important names on the national scene.

Tax consultant Everardo Maciel, former secretary of the Federal Revenue and chairman of the ETCO Advisory Council, spoke about taxing the future - and criticized some of the main reform proposals under discussion today in the country.

The assistant attorney general of the National Treasury, Phelippe Toledo Pires de Oliveira, spoke about the inherent complexity of the entire tax system and the excesses of the Brazilian model.

Professor Roberto Quiroga showed a preference for not so drastic changes in the current system and defended measures to reduce tax litigation.

The economist Marcos Lisboa dealt with the relationship between the tax system and the country's development, defended the adoption of some principles for the reform and recommended more attention to international studies to support new proposals.

The federal deputy Efraim Filho, a member of the Special Tax Reform Commission, was responsible for the closure, which showed optimism about the progress of the reform this year in Congress.

Below, we publish a selection of the views they presented at the ETCO and Valor event. Click on the images to read the highlights of each speaker:

"I have the impression that I am on another planet"

Few Brazilians understand tax systems as much as Pernambuco's Everardo Maciel, president of the ETCO Advisory Council. He has followed the theme since the 1960s and accumulates deep academic knowledge with a relevant career in the public sector, which includes eight years as secretary of the Federal Revenue in the FHC governments (1995-2002).

In his lecture at the Taxation Seminar in Brazil, Everardo made strong criticisms of the reform proposals being debated today in Brazil. He stated that they do not deal with either the great contemporary issues of the tax field discussed worldwide or the real problems of the Brazilian system, on which he made an overview.

He also dismantled some clichés about the Brazilian tax model, which he called “mystifications” of those who do not study the topic in depth, and pointed out what he considers to be major mistakes in the main tax reform project under discussion in the Chamber of Deputies, PEC 45 / 2019. Following are excerpts from the lecture:

What the world discusses

“Sometimes, when I look at the discussions taking place in Brazil about tax matters, I have the impression that I am on another planet. Because that is not what is being discussed in the world. We have at least three major tax issues that are being discussed outside of here: first, the erosion of tax bases; second, the taxation of the digital economy; third, a problem to which we still have no answer, which is that of new sources of Social Security financing. ”

Erosion of tax bases

“Tax bases are eroded for a combination of reasons, but notably abusive tax planning, tax havens and the transfer of taxation of profits from countries with higher taxation to countries with lower taxation or without taxation, which are, after all, tax havens. ”

Taxation of the digital economy

“When we talk about taxing consumption we have always been looking at issues such as the provision of services and the sale of goods. Now, we have another phenomenon, poorly known, badly sized, but perhaps the most relevant of all: how to tax information? When you go to Google, which historian Yuval Harari calls ´the attention merchants´, the product is you. We are, therefore, dealing with a phenomenon completely unlike anything known. The information he captures by apparently giving away free information has become, perhaps, the greatest source of contemporary wealth generation. To this end, the European Union approved at the end of last year a turnover tax, a tax on the billing of large companies that convey information and that are in the digital economy. A cumulative tax, which will start to dismantle some theories about cumulative and non-cumulative. ”

New sources for Social Security

"The world changed. The nature of employment has changed. It is a revolutionary change. There are discussions about taxing financial transactions. France and Germany objectively discuss this, which is perhaps one of the only possibilities for creating a new source of Social Security funding. A person as qualified as the Nobel Prize in Economics Robert Shiller is considering taxing robots, in which he is supported by Bill Gates. ”

Clichés and mystifications in Brazil

“Taxation, as it is somewhat unpleasant, gives a remarkable space for mystification, for hasty conclusions about things that have not been studied seriously. The first is the complexity of the tax system. Complexity is inherent in phenomena. What cannot be distinguished is complexity of operability. Tax systems must be operable. They have to be easy. And not necessarily simple, because simplicity or complexity are inherent to the phenomenon. ”

Fantasy about regressivity

“There is a fantasy that, if I tax consumption more, I am in a regressive system. This is just fantasy. It depends on the form of taxation of consumption, it depends on the form of taxation of income. ”

Competition and fiscal war

“There is an inability to distinguish licit tax competition from illicit tax competition, which is the fiscal war. Tax competition has existed since there are taxes. Tax competition here cannot, in Europe it can. If I speak English it is reasonable, if I speak Portuguese it is bad. Tax ruling can, tax incentive cannot. ”

Our biggest problems

LITIGATION: “Litigation has to do with the tax process, not with the tax. It can be any tax, if the process is dysfunctional, there will be excessive litigation. ”

LEGAL INSECURITY: “Which is associated with concepts with low normative or controversial density. But this has to be resolved by the normative way, it does not depend on taxes. ”

BUROCRATISMO: “Bureaucratism refers to accessory obligations, it does not depend on the nature of the tax. The Brazilian tax system is very bureaucratic not because it has ICMS, PIS, Income Tax, nothing like that. It is bureaucratic because it has excessive ancillary obligations. And the domain of ancillary obligations is a separate domain from substantive law. ”

Border between ICMS and ISS

“The biggest problem that exists is the border between ICMS and ISS. How to do this is a challenge to intelligence. The simple solution says: ´the two come together´. Well, but what about the federative issue? How is all the jurisprudence that exists around this? Is it to throw the dirty water in the basin with the child? ”

PEC 45: design errors

“PEC 45 is a magical solution to solve problems, centered, among others, on the principle of destiny. Fate principle is a tax evasion matrix. He wants to institute an IVA, which is an obsolete tax, from 1949, absolutely unable to deal with the digital economy in a world that is thinking about something after taxation of consumption and income. It is stated that, with the adoption of this model, the Brazilian GDP will grow ten percentage points. This is shame, it is bad magic, it has no connection. ”

PEC 45: who wins and loses

“In essence, it is a transfer of taxation. Who wins with that? Financial institutions, large companies in the industrial and commercial fields. But if the aggregate tax burden is constant, someone pays that bill: the 850 taxpayers who are in the presumed profit, who are essentially small service providers, traders and industrialists. The civil construction sector also pays this bill. ”

Service price increase

“The price of medical appointments will rise, school fees will rise, the health plan will rise, which is the only way to balance the new account. PEC 45 increases taxation in these sectors by between 300% and 700%. ”

PEC 45: other problems

SELECTIVITY: “It says that for VAT taxation everything will be the same, so the bread has the same rate as the fur coat. And, to correct this injustice, the poorest are given a 'tax scholarship'. It definitely doesn't work. ”

FISCAL EVASION: “VAT has serious problems with tax evasion, one of which is called ´carousel´, the illicit sale of services to transfer credit. Another: I'm going to see the doctor, he says' my dear, now the rate is 25% ´. What will happen next? 'Is it with a note or without a note?' ”

INCREASED LITIGIOSITY: “More than 150 articles of the constitutional text and the Transitional Constitutional Provisions Act are dealt with, with forty new concepts. This gives litigation for eternity. ”

CONFLICTS BY SHARING: “PEC says that a singular rate in a complementary law will define the sharing and binding of taxes. This is a deadly war between federal entities and between sectors. ”

FIFTY-YEAR TERM: “For fifty years there would be compensation for losses between the federal entities. Does anyone in their right mind believe that there will still be taxes in fifty years - at least as we know them today? ”

INCREASED COMPLEXITY: “For ten years, the taxes that exist today will coexist with the new taxes. That is to say: none of the problems that exist today are solved and new ones are created. ”

“We are going to work around the swamp”

The Brazilian tax system needs changes that value good taxpayers, fight the persistent tax debtors and correct specific problems in sectors that suffer unfair taxation competition, such as cigarettes, beverages and fuels. These were the main points defended by ETCO's executive president, Edson Vismona, at the Taxation in Brazil seminar.

He also recalled ETCO's participation in the approval and implementation of important projects to combat tax evasion in the country. He cited the implementation of physical control systems for the production of beverages and cigarettes, the approval of article 146-A of the Constitution, which authorized treating in a tougher way taxpayers who use illicit tax advantages against their competitors, and the creation of the Underground Economy Index, which has followed the evolution of the informal economy in Brazil since 2003.

Vismona also recalled the two manifestos that ETCO prepared, with proposals on taxation and public security, and which he personally delivered to the main candidates in the 2018 presidential elections.

The following are some proposals that he defended in his lecture:

Bypass the swamp

“In discussions at the ETCO tax group, I remembered the guidance that Abraham Lincoln gave his generals in the American Civil War: 'Gentlemen, if you come across a swamp, don't go in there, turn around'. When I hear the current debates on tax reform, that image comes to me. This can be a swamp, we are going to work around the swamp, because, when we get into this idea of ​​reform, everyone thinks: 'it will reduce the tax burden'. But without reforming the state? ”

“Nobody wants to lose. The State does not want to lose, the Union does not want to lose, the Municipality does not want to lose, we do not want to lose, companies, sectors. Then you walk to a game of ´lose you, I don´t´. That is, each one has a tax reform in mind. Against this background, the idea of ​​the swamp becomes increasingly clear. ”

Tax authorities

“We taxpayers want to keep up with our contributions to the tax authorities and we find all the difficulties. We are the country that spends the most time to fulfill tax obligations. We work for the state. And the State is looking: "Wrong, take a fine, 150% fine and I will take you to Criminal Justice". And then there was this maxim of the correct taxpayers: "I shouldn't, I deny it, but I pay". One of our associates, faced with the threat of taking a criminal report, paid, went to court and, after a few years, won. Look at the burden of this: you paid something you shouldn't have! And he had to go to court to argue. ”

What ETCO stands for

“We have proposals: a program to reduce bureaucracy. There is already a complementary bill, it was discussed in our tax group, with an emphasis on a single tax register, in the simplification of the processes of opening and closing companies, this is now happening with the MP for Economic Freedom; elimination of the requirement for a negative certificate; universal tax compensation; annual consolidation of legislation; and setting a deadline for responses, because the tax administration has no deadline, we do. ”

“Some PLs that we are suggesting: a radical reform of the tax process, there are already two PECs that are being discussed. Establishment of general tax procedural rules, with integration between administrative and judicial proceedings. Restructuring of tax administrative litigation bodies. Monophasia of the ICMS on fuel, as provided for in the Constitution. ”

Stop cigarette smuggling

“Our market is being delivered to the smuggler. Today, 54% of it is in the hands of smuggling. There has been a disproportionate increase in the past four years. Last year, the collection was lower than the tax evasion. Why is that? In Paraguay, the tax on cigarettes is 18%, in Brazil, 70% to 90%. The price difference is half. The low-income class only buys contraband products. Organized crime has already occupied this space. He finances himself with these billions that are evaded. We have to crack down on criminal organizations, but we need to look at the demand. The police say this: it is no use, just because of the repression, we will not change this situation. Our proposal is to maintain the tax burden, but to change the distribution of taxes: the premium brand tax is increased and each company creates a confrontation mark with a lower tax to occupy the smuggling space. It is the only proposal that we believe is feasible at the moment. And we want to move forward with it, because otherwise the projections already show that, next year, the market will already be 60% in the hands of smugglers, with an upward bias. ”

Fighting hard debtors

“The regular tax debtor structures the business so as not to pay tax, he makes money by not paying tax, he erodes competition by not paying tax, he seeks to discuss in all administrative and judicial instances, in all ways. And he conveys the image that he is a victim, he wants to be confused with an eventual tax debtor. He uses this maxim: 'I must, I do not deny and I do not pay'. When the tax authorities finally reach it, the company no longer exists, it has already closed, it is something that will simply get lost. There are billions of reais in the beverage, tobacco and fuel sectors. Our proposal is PLS 284/2017 which is being processed in the Senate. It is the other side of the coin: for the average debtor, we want the tax authorities to have effective collection mechanisms and to be able to use these mechanisms to prevent liabilities from growing in an absolutely unsustainable way. ”

Physical control of drinks

“The physical control of beverages was suspended by the IRS. There was gross corruption in the operation and the government decided to throw the child in with the bath water. Instead of maintaining, perfecting and ending corruption, they preferred to shut down the system, and that already has perverse effects on competition in the beverage industry. ”

"We need to simplify our tax system"

The ideal tax reform must guarantee some assumptions: be economically sustainable; reassess the distribution of taxes between consumption, income and wealth; reduce the complexity and litigation level of the current system; respect the federative pact; review tax benefits; reform the tax collection process; and fight the stubborn tax debtor. These were the topics addressed by the Deputy Attorney General of the National Treasury, Phelippe Toledo Pires de Oliveira, at the Taxation in Brazil seminar, held in partnership by ETCO and the newspaper Valor Econômico. Following, a selection of excerpts from the lecture.

Optimal level of taxation

"Adequate taxation cannot be too low to not compromise the sustainability of the State in the provision of services, nor so high that it stifles the economy, kills the goose that lays the golden eggs."

Collection sources

“As taxable wealth, we traditionally have assets, income and consumption. From the Brazilian point of view, in income taxation, we have the IRPJ, the IRPF and the Social Contribution on Profit; on equity, IPTU, IPVA, ITBI and ITCMD; consumption, IPI, ICMS, PIS and Cofins. Today taxation in Brazil is based on consumption (48% of revenue) and payroll (26% of payroll and just under 20% of income tax). Taxation on equity in Brazil is less than 5%. ”

Why is it so complex

“Complexity is inherent in our tax system. It is complex because there are different tax types - taxes, fees, improvement contributions, compulsory loans - and within each of these species there are also the taxes themselves: Income Tax, Contribution for Intervention in the Economic Domain, contribution on the payroll . We have countless tributes. And countless taxes collected and imposed by different entities. So complexity is inherent in the system. ”

We need to simplify

“There are a multitude of taxation regimes, collection regimes, single-phase system, forward replacement, backward replacement, income tax withheld at source… So our legislation is a daily challenge. And complex legislation, combined with other economic factors, gives rise to enormous litigation. ”

High level of litigation

“We have about 6 million tax foreclosures within the Union alone. Today, in CARF alone, there are around 150 thousand cases in process and approximately 12 thousand to 14 thousand trials per year. Just to put an end to the tax liability today at CARF, considering that no more lawsuits would enter, it would take ten years. ”

“Legal discussions sometimes take twenty years. We need to try to reduce this dispute. A reformulation of the collection system is necessary. Tax enforcement is sometimes there for years, creating an incentive for the bad debtor. ”

Exemption from dividends

“The dividend exemption brought a great benefit, which was to end the discussion about the disguised distribution of profits. But it also spawned the phenomenon of ‘wronging’ to pay less taxes. ”

Reassess tax benefits

“The issue of tax benefits exists worldwide, but are the tax benefits here in Brazil fulfilling their purpose? To what extent would the reduction of these benefits not allow a consequent reduction in the corporate income tax rate? Just as we are seeing a discussion about the end of privileges for public servants and the end of privileges for deputies in relation to the social security benefit, it is necessary to rethink in relation to the tax, in relation to the return of this benefit to society. ”

Fight against the debtor

“Most of the time, they are companies that have nothing in their names. So the problem is timing in relation to the time of inspection and the time of collection, which the regular debtor will discuss administratively and judicially, postponing the payment until after ten years, when there will be no more equity. With this project to combat the persistent debtor [PLS 284/2017, pending in the Senate], in some very specific situations it is possible to cancel even the CNPJ registration, so that, immediately, it cannot continue to work. ”

"It's good to check what the data says"

In his lecture at the Taxation in Brazil seminar, economist Marcos Lisboa criticized the current tax system and some proposals that are being suggested for tax reform. It is worth remembering that he accumulates relevant trajectories in the academic environment (Ph.D. in economics from the University of Pennsylvania, he was a professor at FGV and an assistant professor at Stanford University), in the government (he was secretary of Economic Policy at the Ministry of Finance in 2003 2005) and in the private sector (current president of Insper, was vice-president of Itaú and president of the Brazilian Reinsurance Institute).

Lisbon rejects, for example, the practice of stimulating companies, sectors or regions of the country through tax incentives, recommending the way of public spending. It condemns to vary the level of taxation according to the type of product so as not to distort relative prices. Disapproves the return of the tax on financial transactions. And he says that the high level of conflicts between the tax authorities and companies is preventing investments. The economist also spoke about taxing profit sharing, reducing corporate taxes and adopting VAT.

Following are excerpts from the lecture:

Spending instead of incentive

“Everything you do via tax incentives, you can do via public spending. There is no reason to encourage a sector, a production, a factory through tax incentives. It has no transparency, it does not pass through Assemblies or Congress and creates distortions between sectors. Do you want to give a benefit to a sector, to a company, do you bet on the project? Great. Taxation has to be the same for all sectors, so collect the funds and, via the Assembly or Congress, make an allocation to support project A, B or C. And that has transparency, has control of society. ”

Measure the right way

“There is vast international evidence in the applied literature with data that shows that public policy via spending is much more effective than via taxation. Now, you can't do the math as some areas do: "I received so much public subsidy and I generated so much employment". Accounting for public policy evaluation has to take into account the opportunity cost of the policy. By resolving to support the Manaus Free Trade Zone, we are failing to spend R $ 28 billion in another area. It is useless to say: ´The Free Zone generated X jobs´. I could have given you a lot more jobs otherwise. ”

Do not distort relative prices

“Taxation should not distort relative prices. Every time you distort relative price in relation to the effective cost of production you make the country poorer. If, for example, CPMF returns, the tax on financial transactions - and high, as it is proposed -, it is better, instead of buying from suppliers in some cases, to produce the parts internally, because I do not pay the tax, even that is less economically efficient. That is, tax distortions benefit the inefficient. ”

Misallocation of resources and poverty

“Taxation should not distort relative prices. This reduces the productivity of the economy, it leads to allocative inefficiency. When we analyze business census data between rich and poor countries, between 30% and 60% of the productivity gap comes from misallocation of resources. It is capital and labor employed in inefficient companies. This is one of the main factors why poor countries are poor. ”

The losses from the CPMF return

“An article just came out this year in the Journal of International Money and Finance, by researcher Felipe Restrepo, about countries in Latin America that have adopted taxes such as the CPMF and the impacts it has caused: increased demand for currency - of course, the less. make financial transactions, better, you pay less tax -, reduced credit supply, less industry growth. So much so that countries have been abandoning the CPMF. Australia, which is the only developed country I know of that used it, abandoned it a long time ago. There is only one country left that has a high CPMF rate, only one: Venezuela. ”

Sixty times greater tax litigation

“Our litigation, according to a study comparing the tax litigation of seventeen countries, carried out in 2014, only in the Federal Revenue and CARF, without taking into account the ICMS, is 12% of GDP. The index is sixty times the median value of seventeen countries. And this is having an impact on investment, private decisions. ”

“Our tax litigation is dysfunctional. The governance of the tax regime is not good. The IRS does the standard, interprets, assess, the auditors have a casting vote in CARF. Something is not working well given the size of the litigation, given the conflicts between revenue and taxpayers, given the country's backwardness. ”

Taxation at destination

“Good tax practice and good tax theory for better functioning of the economy is to tax at the destination where the goods are finally sold. Brazil has a tax on the origin and we know the consequences - the fiscal war is one of them. But it is worse than that, because it has consequences on the allocation of assets. You put the factory where it shouldn't be. That capital ends up going to a region where it is less productive. ”

Taxing individuals - and less legal entities

“In the world, the corporate income tax is being reduced. It's going to 19%, 20%. You tax the company much less and tax the distribution of results. What is the problem with Brazil not being in agreement with the world? Our companies are unable to go international. ”

“If I want to do tax justice, I have to tax personal income. If I confuse the individual with the size of the company, I commit immense injustices in society. ”

Pros and cons of VAT

“In VAT, which is the most common indirect tax in the world, you tax the income generated. Basically, it is a tax on wages, interest, rent, on the income generated, on what was created from wealth, which is what good taxation commands. You tax the creation of wealth, you do not tax what has not generated wealth. But the difficulty, we know, is to induce tax evasion. ”

“I am in favor of not-so-drastic reforms”

Professor of Tax Law at the University of São Paulo (USP) and FGV Direito SP Roberto Quiroga Mosquera questions some of the assumptions that underpin the proposals for tax reform. According to him, it is not true, for example, that Brazil taxes income a little. Including in the account, in addition to the Income Tax, the contributions to the INSS, both levying on salaries, he calculates that today 60% to 65% of the federal revenue falls on the remuneration of Brazilians. He also discusses the claim that the tax system is very complex, remembering that the vast majority of citizens and companies integrate easier to operate regimes, such as Simples, the presumed profit and the simplified version of the Individual Income Tax.

But Quiroga sees major problems in the current system - and his presentation, at the Taxation Seminar in Brazil, promoted in partnership with ETCO and the newspaper Valor Econômico, sought to point the spotlight in their direction. One of the most serious, in his opinion, is the situation of Brazilian tax litigation, an evil that affects mainly large companies. In his assessment, if the problem is not solved in the next two years, the guarantee capacities that companies are obliged to give while the lawsuits are discussed in court will be exhausted, which may cause even more macroeconomic losses to Brazil.

Quiroga also spoke about the reform proposals under discussion in the country today, foreseeing difficulties in approving very profound changes due to the natural clashes with the democratic regime. Following is a selection of excerpts from the lecture:

The myth of low income taxation

“Today, income tax for individuals and companies, and if we also take the INSS, which is a tax on pay, on wages, the sum represents something around 60%, 65% of the entire federal tax collection . ”

“In addition, we have an additional R $ 250 billion, R $ 300 billion of PIS / Cofins, which is levied on revenue. So, if we take all the federal revenue, 80% will be on income and billing. Therefore, a first statement that in Brazil we do not tax income is a lie. ”

“It is no use simply saying this: now I will tax income more and stop taxing consumption. I will not be able to raise enough for the public expenditure that I have. ”

Urgent problem: litigation

“Today, the size of Brazilian tax litigation is equivalent to half a GDP, close to R $ 3,3 trillion. Unlike the old, poor quality litigation, today we have a very large one of good quality. These are theses and topics of great theoretical discussion, which end up being discussed in the administrative and judicial areas. ”

“This basically represents a group of 15 thousand companies, or something around 2,5% of all Brazilian legal entities, which pay on the real profit and are responsible for 70% of the entire collection, whether federal, state, be municipal. ”

Too much power with the tax authorities

“I am from the time of tax law when we had normative opinions, which in a certain way would resolve some interpretations and some doubts. But today we are at the time of the CARF, that is, the assessment is made, the judge goes to the administrative court to judge the matter, a thesis that was developed within the inspection, with qualified fines of 150%, with subpoena under the tax and criminal point of view and also with asset constraints. ”

Ten years of discussion in court

“It is not easy to discuss a tax issue within a Federal Court. Judges demand guarantees, cautions, this is costly for a company. ”

"I have a very serious panorama of litigation, which will end up generating a very serious discussion in the Judiciary, within ten years, and a decapitalization of companies to discuss this topic."

“How are we going to be able to ease or reach a consensus on this litigation so that it cannot generate a Capex (Capital Expenditure) problem?”

Feasibility of in-depth reform

"I am very much in favor of reforms that are not as drastic as those that are intended to be carried out."

“It is not true that these imports of tax models practiced abroad will really give us the facility, what we imagine in terms of simplicity or even operability for our tax system. Great care must be taken with this combination of taxes and especially with the federative issue. ”

“When the accounts are done, I doubt that the governors will seal a division where a management committee will raise its appeal, will manage the resources, discuss in court. It will be very difficult, in my view, to host a reform project in which the three spheres come together. ”

Natural difficulties of democracy

"The great moment when we had a major constitutional change was in 1965, with Constitutional Amendment No. 18. Let's remember that it was the period of the dictatorship."

"We are in a democratic regime, where lobbies, all political flows and counter-flows of interests will have their differences."

To stop cigarette smuggling

“How can we prevent cigarette smuggling? Eventually companies that produce premium cigarettes may start to produce cigarettes of another quality to compete with the tax evader. This happened in the institution of the presumed profit regime in Brazil. When Everardo Maciel made the presumed profit legislation in 1995, he said the following: What is the simplest way to evade? It is called ´note purchase´. How much does a note cost? 10%. We will do a taxation close to 10% to compete with the tax evader. This is Brazil. We have to create solutions for Brazil, since we have specific circumstances here. ”