“Brazil's tax litigation is equivalent to half a GDP”, says Edson Vismona to Istoé Dinheiro
“If you join the Union, states and municipalities, the tax litigation is over R $ 5 trillion” - Edson Vismona, president of ETCO.
Only at the federal level, the lack of agreement between the tax authorities and taxpayers leaves the equivalent of half of the Brazilian GDP at a standstill. The amount reached R $ 3,4 trillion in 2019. It is something unparalleled in the world. Part of that money could migrate to public coffers and become State investment. For that, it is necessary to establish a new relationship with the Revenue. According to the president of the Brazilian Institute of Ethics in Competition, “the current one has broken”.
De Osvaldo, honesty. From Alice, humility. The pillars that guide Edson Vismona's daily life came from his parents. Paulistano do Brás, 60 years old, graduated from Largo de São Francisco Law School (University of São Paulo), the executive president of the Brazilian Institute of Competitive Ethics (Etco) has just started conducting his biggest crusade: building a new relationship between taxpayers, especially large ones, and the tax authorities. "The one that exists no longer serves," he says. Etco's struggles so far were not small. Maintained by companies in the beverage, cigarette and fuel sectors, which face piracy, fraud and persistent debtors - only the cigarette segment collected R $ 11,8 billion in 2019, but evasion totaled R $ 12,2 billion -, the entity hired the consultancy EY to prepare the most detailed study on tax litigation in Brazil. Money equivalent to half a GDP (R $ 3,4 trillion) stopped in court and could be injected into the purse. “The fight now is for the whole of society. It is our contribution to the country ”,
MONEY - Etco prepared a robust study on the issue of tax litigation in Brazil and found something frightening, that the volume of resources under litigation is equivalent to half of GDP, R $ 3,4 trillion. How did that come about?
EDSON VISMONA - Our associates brought this concern, that there is a lot of money being discussed at administrative levels, or judicial levels. We hired EY not only to check the situation, but also to compare it to other countries, to see if Brazil is out of the curve or not. What was a comment translated into numbers: R $ 3,4 trillion in 2019, which is equivalent to 50,4% of GDP.
Through the study, this data has grown. In 2013 it was R $ 2,2 trillion (42% of GDP). Nominally, there was an increase of 54% in seven years, to R $ 3,4 trillion. Yes, in addition to an already dramatic scenario, the bias is high. It's scary.
What happens in the other countries surveyed in comparison with Brazil?
We chose six countries, all better placed than Brazil (80th) in the Global Competitiveness Report 2017-2018: United States (2nd), Germany (5th), Australia (21st), India (40th), Portugal (42nd) and Mexico (51st). The selection sought different legal systems that would function as benchmarking [the first three], nations of direct influence, such as Portugal, or of economic similarities with Brazil [India and Mexico].
And what did they discover?
Nowhere is litigation similar to ours. In other countries, it barely exceeds 2% of GDP.
Does this have to do with the complexity of the Brazilian tax system?A complex tax system is that of every country. Ours does not escape. But in addition to being complex, ours is chaotic. Why?
There was an insane production of tax rules. From 1988 [Constitution] to 2018, more than 390 thousand rules were edited. This shows the state's voracity in wanting to regulate.
In that period (1988-2018) it gives almost 20 thousand standards per year.
What causes the opposite of the intended [which is to collect]. Because the more you regulate the more discussion alternatives you create. We lost the whole idea of a rational collection structure.
A collecting machine is not only voracious, as you define, but irrational. But the appetite has apparently not changed.
But it hits its limit. We have a 35% tax burden in a country that offers very little to society. Where does that money go? It goes to pay Social Security. It goes to pay salary. It is not to invest. The value of the Union's investment budget is ridiculous. It is not a question of asking whether the State should spend or not. You must spend, but spend well. What is important. In particular, I defend a strong presence on the social issue, especially in a country as unequal as ours. But I do not advocate a staff. And there was no discussion in previous governments to contain the size of that state.
It bloated and still growing makes the money get smaller.
There was a very crazy idea that money appears. I've heard it from [public] managers: 'Ah, one hour the money comes'. Where? It appears because it is not yours. The relationship of the public administrator with public money is often an irresponsible one.
One hour the bill arrives.
Yes, the bill and the nightmare. A state that traditionally came in a process of increasing spending will want to increase revenue in every possible way, creating all the pendants to collect, no matter how. The account does not close, litigation increases, the deficit increases. Here comes the madness.
With so much norm, the environment to discuss with the Treasury is fertile.
I'll give you an example. The tax authorities declare the following: you did not pay such a tax, this is a crime and you, or your director, will be reported to the Public Ministry. You answer: 'Wait a minute, what went wrong ?, where did I go wrong ?, we had a different interpretation than yours, this is not a crime'. The answer is: 'I'm going to act anyway, then you turn around, go and defend yourself'. This impacts any serious business. Only the percentage of tax representations for criminal purposes grows from 25,4% of the total (2017) to 29,4% of the total (2018). Do you mean that in a year the companies decided to become criminals? Companies with shares on the stock exchange, who pay billions of taxes, who have equity ...
What can be done so that this fiscally at war environment is undone?
We need a DR, to discuss the relationship. Let's discuss the Tax-Taxpayer relationship. Because the one that exists has broken. The state wants to receive and the taxpayer wants to pay. I read in a news article that litigation is good for companies because they don't pay and push with their bellies for 19 years. Is not true. Because this 'not paying' is recorded in the balance sheet.
And it brings impacts.
It impacts on the stock exchange, in the evaluation of that company, it harms rating. This is nothing good for the taxpayer.
Is there a culture of the Revenue in not seeking the solution, the agreement, right away?
Then we discuss the relationship. In comparison with the other countries, this attracted a lot of attention. They all try to define the tax debt, how much is due, in the beginning. Even the American tax authorities, famous for being extremely tough, try to resolve the dispute at the beginning, using the mechanisms of mediation, arbitration. This goes for the United States, Germany, Australia, for Mexico, for Portugal… Even in India it works better.
Here we are stuck. In a process in which you are fined, do not agree with that amount, the answer often comes in the form of aggravating with a 100% fine, 150% on top and still with a threat of receiving a tax representation and being taken to the MP as criminal. It happens a lot. Often at first, the tax authorities say 'oh, I was wrong'. Then you ask for the correction to be corrected, but you hear as an answer 'no, no, take it to discuss'. It does not correct the error that he himself admits. Such a process if it is linear takes almost 19 years. It remains open, without the tax authorities receiving it.
What could a change in that culture mean?
An estimate of ours, clearing fines and reaching a more feasible value in this litigation of R $ 3,4 trillion, shows that something around R $ 900 billion could turn into taxpayer contributions from large taxpayers. We will divide this in ten years, it is R $ 90 billion a year [the public deficit of the central government in 2019 was R $ 95 billion]. And it is doable.
Where does this litigious stance come from?
Talking to a supervisor he said that they do not have this freedom to, in the face of a situation, not to sue. In part it is true. But there is the possibility, in the National Tax Code [articles 156 and 171], to regulate an agreement. It is in the Code, all that is needed is the law to regulate. But it is also necessary for administrators to seek this interpretation. There are already those who work in this direction. In São Paulo we have a 2018 law, which led to the Nos Conformes Program [in force since 2019], which goes in this direction of the agreement, of transparent communication.
These are still isolated initiatives and while the scenario does not change, it gets worse.
Because this litigation increases every year. We are in a tax ditch and instead of a ladder we were thrown a shovel. I don't want a shovel, I want a ladder.
And what has Etco effectively done to make the change happen?
Based on this study, we will conduct a roadshow, taking authorities, political leaders. We want to spark the discussion. We have data that if we join states and municipalities the litigation will exceed R $ 5 trillion. Because it is a logic that does not apply only to the federal tax authorities. It is valid for the state and municipal.
Can this debate be confused with that of tax reform?
The issue of tax reform concerns us a lot because we don't have figures on it. We do not know what will come. Who has the numbers is the federal government, which has not yet entered the game. So we are not clear. And then everyone says something. Sometimes frightening, like the fact that on top of services, taxes will increase by 300% ... Anyway, what our experience shows is that every tax reform has increased litigation.
So there will be more fighting around?
Yes. It will increase litigation. In other words, we are exchanging the shovel in the tax litigation pit for an excavator.
The discussion of the Tax-Taxpayer relationship, proposed by Etco, cannot hinder the tax reform?
Our tax attorneys are unanimous in seeing the issue of litigation as something more important than the tax reform itself. Because we would give a breath of cash to the State. Resolving the dispute would be something prior to the tax reform, because it would be carried out at another level, not in despair.
But society, including practically all business, financial and economic leaders from all walks of life, everyone expects reform.
Yes, society wants an answer, but it does not want to enter a swamp. Not knowing what will come out of there.
About this inertia of the Executive. Does not a considerable part of it originate from the lack of pressure from the business elite, who spent the first year of Bolsonaro's term saying that it is possible to shield the economic agenda from political issues, which did not contaminate the other?
They are absolutely connected themes. A statement by a president or a minister, a mere statement, can topple the stock market or raise the stock market. That is why our market is so volatile. Take the issue of coronavirus, which is not a political issue in itself. Political statements can make the situation even worse, for example, if they convey the perception that our politicians are not taking the situation as seriously as it deserves. Things are all connected. There is no way to separate them.
And are the themes contaminated?
Yes. Everything is connected. The Brazilian productive sector is very competitive, from the door to the inside. But from the door out, things get difficult. We bear the burden of our situation.
The conduct of the economic agenda of Minister Paulo Guedes began to receive harsh criticism, including from economists of his own conceptual spectrum, such as Armínio Fraga and André Lara Resende, who even called Guedes's liberalism primitive. And the business sector?
The business sector is always concerned with how to optimize its earnings, but also that this process happens in balance. There is an increasing maturity that profit at any cost is no use. And a concern of the business sector has always been in relation to the size of the state. Ours has grown a lot. This burdened society too much, it burdened the productive sectors a lot. It is a heavy and inefficient state.
And the minister's speech addresses this concern.
He [Guedes] is clearly talking about reducing the state. This is good, so the business community supports it. But it gets to the point where you don't see the consequences, even considering all the difficulties that this agenda has in Congress. Here again comes the relationship with politics. The economy does not talk to politics, there is clearly no dialogue ... This worries us a lot.
What we want is for there to be a convergence. And we have our contribution to this debate.