The current tax reform has no opportunities

 

Antonio Oliveira Santos

President of the National Confederation of Goods Trade, Services and Tourism

 

The President Luiz Inácio Lula da Silva, referred to the National Congress earlier this year, a Proposal for Constitutional Amendment (PEC No 233/08), to make a Tax Reform, which, well inspired, had the following objectives: a) to simplify and debureaucratize the System, reducing the number of taxes; b) to increase the formality in the economy; c) to eliminate distortions, in order to reduce the cost of investment and exports; d) to remove the ‘tax war' between the states, including the increasing of the investments and of the economic efficiency; e) broaden the tax exemption, reducing costs for companies and consumers; f) improve the policy of regional development; and g) improve the quality of federative relations.

However, the project prepared by the Ministry of Finance did not reflect, accurately, the presidential recommendations. The project extends, too much, the constitutional text, transforming it into a regulation. In a great part, the rules of the PEC could be subject to additional and ordinary laws. The PEC does not reduce, effectively, the tax burden. In contrast, it might increase it. The new ICMS eliminates the 27 state laws, but it does not remove the differences between States regarding the taxation at the source or destination and it gives excessive powers to the CONFAZ. The PEC extinguishes four Social Contributions – COFINS, PIS, CSLL and Salary-Education – but, in fact, they are replaced by a new tax, the federal tax on transactions with goods and services, the so-called ‘federal IVA', increasing the tax burden for consumers.

In addition, the PEC implements the Tax on Large Fortunes, a confiscation, but the experience shows that, wherever this tribute came into effect, there was mainly the effect of stimulating evasion and transfer of capital and other goods to the foreign, to discourage domestic savings and to create bureaucratic difficulties that aim fraud and corruption.

The reduction of 20% to 12% in eight years, of the Security Contribution is another ‘deception', because it will be offset by federal IVA, levied on the basis of calculation and the extended authorization for the creation of other tax sources. The calculation basis of security contribution can only be the salary, even when a further establishment of capitalization system is aimed.

The current proposal in the House of Representatives is clearly inappropriate and disappointing and it has also decreased the quality of the original project, with the amendments that have been attached, turning into a ‘clutter'.

Under these conditions, the wise decision of the governors of Sao Paulo, Minas Gerais , Rio de Janeiro and Espirito Santo, followed by the Northeast Governors, deserves the most resolute support, in order to suspend the progress of the Tax Reform, as stated in the Proposal for Constitutional Amendment – PEC No. 233/08 (No. 031 – Substitutive of the Reporter Sandro Mabel).

It is clearly not possible, in the dramatic situation of crisis in the financial system and in the global economic recession, to launch a broad tax reform, with the replacement of several taxes, with the introduction of new rules, new tax rates, new accounting and administrative procedures, new bureaucracy. Indeed, the Proposal Reporter himself, the honorable deputy Sandro Mabel considers, in a consolidated Opinion, that ‘tax reform does not match economic instability setting'. Such definition is enough to propose the suspension of the PEC No. 233/2008, as the most interested in a smart tax reform suggest, i.e., businessmen and the Governors.

The decision of Governors is attached to the prudence recommended by the current economic situation, which is one of the biggest global economic crises, after the Great Recession of the 30's. Of course, this is not the time to propose radical changes in the national tax system, with the haste with which the matter is being treated by some segments of the Ministry of Finance and also the Chamber of Deputies. The PEC No. 233/2008 is entirely away from the two basic objectives which should guide any tax reform: simplifying the complex and bureaucratic national system and the essential reduction of tax burden, which is heading towards 40% of the national GDP, higher than that of many industrialized countries such like the United States, and almost the double of the prevailing in many emerging countries, which is competing with Brazil in international markets.

For all these reasons, the National Confederation of Goods Trade, Services and Tourism manifests in complete agreement with the views of Governors.

 

Revista Courobusiness, Edição 61 – nov/dez 2008.