* By Francisco Camargo, president of ABES
Chaotic, irrational, probably the most complicated and regressive in the world. The list is of some comments that we can make, without fear of making mistakes, about the current Brazilian tax system. Created in 1965, our tax collection model has undergone several changes since then, but it continues to present itself as a major obstacle to development and the reduction of inequality in the country. We urgently need tax reform.
The problems are not only complexity and legal uncertainty, two obvious bottlenecks for the Brazilian business community. We are also faced with an unjust and regressive logic, which causes concentration of income by charging more tax to those who earn less, in a load distribution that tends to aggravate many of our problems.
In view of these inconsistencies, a project is being processed by the Chamber of Deputies, presented by federal deputy Luiz Carlos Hauly: the Tax Reform, which aims to simplify bureaucracy, improve inspection, make our system progressive according to income and increase the legal security of the taxpayer. It is a modernizing initiative, very well structured to increase efficiency and income distribution in Brazil, for the time being without reducing the tax burden and government revenue.
We currently have 93 taxes, contributions and fees in the country - 11 of which are taxes and 3 main contributions. According to a report by the World Bank, meeting all these requirements, to make sure that the collections are correct, consumes an average of 1,958 hours per year in companies. The estimated loss of this bureaucracy to the economy is R$ 60 billion annually.
Under the proposed reform, these 14 main charges would be reduced to just 3: Selective Tax, Income Tax and VAT (Value Added Tax). The latter would be responsible for reducing our serious tax wedge by eliminating nonsense like taxes on taxes.
The benefits of this simplification can be seen with examples of success already applied in Brazil. The biggest of these are the National Simple Tax and the Individual Microentrepreneur (MEI) system, created to benefit small businesses. The centralization of several taxes in one, the absence of bureaucracy and the differentiation of rates taking into account the reality of the sectors resulted in great benefits for both the government and entrepreneurs - in 10 years, about R$ 543 billion in taxes were collected and 6.7 billion MEIS and 5 million micro and small companies were opened. In addition to the various jobs generated.
Another mirror must be China. Since 1994, the Asian giant has been developing reforms in its tax system, with the aim of modernizing the economy and sustaining its integration with the world. The collection, previously decentralized and confusing, was restructured with the objective of reducing bureaucracy in the country's operations. In order not to harm the provinces, which had some taxes extinguished, the central government started to distribute among them some typically national contributions (such as income tax). One way to increase machine efficiency at all levels.
A similar reasoning is applied in our tax reform proposal, which, among other measures, seeks to balance the collection of municipal, state and federal powers. There is no way to detail all the ingenuity of the project in one article, but it is possible to separate ten main measures, explained here very briefly, according to the report by Mr Hauly:
1) Create a progressive income tax;
2) Reduce rates for food;
3) Totally exempt exports and fixed assets from companies, with the purpose of promoting the country's reindustrialization;
4) Decrease the cost of hiring and guarantee resources for the INSS;
5) Extinguish taxes such as ICMS, IPI, ISS, COFINS, Salário Educação and create two taxes instead: a classic VAT and a single-phase selective of federal destination on sectors such as electricity, liquid fuels and derivatives, among others;
6) Strengthen Municipalities, transferring all property taxes to city halls;
7) Immediately end the "fiscal war" between Municipalities and States, charging VAT and Selective Tax at Destination;
8) End the tax wedge on bank loans - extinguishing the IOF and other taxes;
9) Keep Super Simple for Micro and Small Companies;
10) Increase new technologies and software, universalizing the use of electronic invoices and collection at the time of purchase.
The approval of all these initiatives would represent a real milestone for our society. These are ideas that contemplate several national problems: the generation of jobs, the reduction of social inequality and tax security, for example - in addition to not affecting the economic viability of the government, opening the way for the collection to increase thanks to factors such as the reduction evasion and economic growth. Such a beneficial project needs to be seen as a priority. We will, yes, join forces for the Social Security and Labor Reforms, among others, but without neglecting the gains that are only possible with the Tax Reform.
* Francisco Camargo is President of ABES - Brazilian Association of Software Companies. Production Engineer from Escola Politécnica, he has a specialization from Harvard University. Francisco is also the Founder of the CLM Group, a Latin American distributor focused on Information Security, Advanced Infrastructure and Analytics.
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