Tax Reform Archives

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 Reform: Pillar for a fairer and more developed Brazil!

Tax Reform is getting closer and closer to becoming a reality in our country. And ETCO is attentive and engaged in this important debate. For 20 years, we have defended and encouraged business ethics, promoting a fairer and more transparent market.

We understand that the tax issue is essential for the economic and social development of Brazil. Therefore, we defend fundamental pillars for an efficient reform: legal certainty, simplification of procedures, rationalization of processes and no increase in the tax burden.

We believe that the Tax Reform is a unique opportunity to boost our country, generating more investments, jobs and income. In addition, it is necessary to combat illegal practices, such as tax evasion and persistent debtors, which harm society as a whole.

Our proposals are in line with studies and assessments carried out in partnership with renowned consultancies, demonstrating the importance of facing the tax litigation and underground economy, involving trillions of reais.

It is in view of this scenario that, with the advance of the tax reform proposal in the Brazilian parliament, ETCO believes that it is necessary to deepen the theme in order to assist in the decisions of the constituted powers, especially the legislative. All of this with a view to improving the business environment, increasing legal certainty and effectively and efficiently combating tax evasion.

Thus, the pillars of any tax proposal must ensure (i) legal certainty; (ii) simplification of taxpayer procedures and real-time inspection; (iii) streamlining processes; (iv) no increase in the tax burden; (v) definition of uniform rates, fighting the fiscal war; and (vi) exemption from exports (with the maintenance of immunity and existing credits).

Considering the proposals initially presented to parliament, it is important to highlight some themes:

Regarding the institution of selective tax, we defend that, if adopted:
Be of a restricted nature, with the prediction of incidence "ad rem" and "ad valorem", depending on the productive sector that is expressly defined by law - not in constitutional terms, so that the government is given flexibility to adapt to reality and effective need of its implantation;
There must be, in the constitutional text itself, mechanisms and limits that prevent the selective tax from being used as a way of increasing revenue to close the public deficit;
The claim to create or increase must be duly supported in said bill by prior studies of economic and social impact that justify it;
It must have its limitations very clear in the Federal Constitution (maximum rate), as well as, in the case of goods already subject to the levy of the Contribution on the Economic Domain (CIDE), it must be accompanied by the necessary adjustments in the constitutional text, in order to avoid the accumulation of taxes; It is
The tax must not be discriminatory;
The maintenance of credits accumulated under the old regime must be guaranteed - even if their use, due to the circumstances of each taxpayer, does not happen within the transition period, there must be a way to maintain these credits -, with the express definition in the PEC itself on the return of accumulated credits and the monetization of existing credit balances in the transition, with a fixed term;
In line with the pillars of simplicity and legal certainty, application of the single-phase taxation regime for certain sectors, to the detriment of the current “forward” tax substitution model, and
The transition period must ensure predictability and be adjusted for cases of operations with tax incentives as a counterpart to investments made, balancing the period so as not to increase the complexity of tax compliance.

From everything presented, it is evident that the Tax Reform represents an opportunity to raise Brazil to a level of greater development and this moment cannot be wasted. The guarantee of the necessary legal certainty, simplifying the tax structure, promoting the formalization of the economy, alongside the reduction of the space for litigation and the fight against the practices of habitual debtors, constitute parameters and premises that should guide the conformation of a new reality in the relationship tax / taxpayer.

We count on everyone's support to build a fairer, more transparent and efficient tax system.

Tax Disinformation

It is indisputable that the Brazilian tax system has many problems, aggravated, moreover, by incomprehensible judicial decisions and legislative delays in relation to complementary laws, provided for in the 1988 Constitution and never enacted.

This framework facilitates the construction of fallacies, logical leaps and disinformation of all kinds.

It is pointed out, as evidence of the complexity of the tax system, the existence of different rates of IPI for perfumery products. If this were a problem, it was something that could be resolved with a modest decree.

Another piece of evidence, even used in an article published on the internet, is the case of crocs shoes. It is claimed that changes in the classification of these shoes resulted in tax assessments. Palmar error. The issue was not tax. It was about the application by the Foreign Trade Chamber (Camex) of anti-dumping duties on footwear imports from China. Furthermore, the classification had already generated controversy at the international level, having required specific deliberation at the World Customs Organization in Brussels.

The World Bank's Doing Business survey is repeatedly cited to justify tax reform projects, under the implausible allegation that paying taxes in Brazil required more than 2 hours a year. Apart from being a matter related to bureaucracy and not the nature of taxes, around 97% of taxpayers are Simples and presumed profit opters who fulfill their obligations very easily, thanks to the simplicity of the regimes and the efficient applications available. Moreover, the survey was “discontinued” by the Bank, in 2021, due to fraud and inconsistencies detected by an independent audit.

There is also talk of increasing revenue through the revocation of tax benefits. This claim, however, contains several pitfalls: the concept of tax waiver is not clear, which often includes situations arising from the constitutional precept of mandatory compliance, such as the taxation of micro and small companies; the extinction of a tax benefit may imply the closure of the benefited business, with no benefit for the collection; the National Tax Code prohibits the cancellation of a benefit given for a certain period and under conditions.

This disinformation tournament is won by the announcement that a tax reform, whose scope is strictly unknown, will promote a 10% growth in the Brazilian GDP, in 15 years. There are also those who believe in elves.

See the main points advocated by ETCO in relation to Tax Reform

The tax reform has been discussed in Congress for decades and we know that its approval is quite complex, because it directly affects different sectors of society, as well as the various levels of government (Union, States and municipalities).
Since its founding 20 years ago, ETCO has concentrated its efforts on studies, proposals and actions that can contribute to improving the business environment and combating illegal practices, especially with regard to tax issues.
Since 2019, we have followed the discussions on PECs 45/19 (Chamber) and 110/19 (Senate), promoting several debates with renowned experts on the subject.
As a result of this work, we reached a consensus on the elementary principles that must be ensured:

I – Prohibition of any claim to increase the tax burden, in order to prevent the unwanted expansion of the illegal market, which makes the competitive balance unfeasible;

II – Simplification and rationalization of tax regimes;

III – Tax reduction of bureaucracy;

IV – Discipline of Article 146-A of the Constitution, aiming to prevent tax-competitive deviations, under the terms of PL 164/22.

V – Resolution of major tax disputes, notably encouraging the use of the Tax Transaction institute and the improvement of Tax Arbitration as a tool for conflict resolution.

the spanish lesson

In April 2021, Spain decided to set up a commission made up of specialists, recruited from within the government and outside it, to produce a diagnosis of its tax system and, from there, prepare proposals to improve its efficiency and adjust it to the new requirements of environmental taxation. and the digital economy.
Last February, the commission presented, for debates, the “Libro Blanco sobre la Reforma Tributaria”, a consistent 788-page document.
Spain made the right choice. Any reform must be preceded by a diagnosis, which specifies the problem and transparently points out solutions accompanied by their repercussions. Otherwise, it is a mere authoritarian package, which often embeds less than virtuous interests.
The Spanish path is not unheard of. In the 1960s, the Special Commission for Tax Reform was created in Brazil, made up of qualified specialists, whose work resulted in Constitutional Amendment No. 18, of 1965, our most daring reform of consumption taxation.
No one doubts the existence of numerous problems in the Brazilian tax system. However, it is necessary to examine them with depth and impartiality.
The establishment of a commission today could be a good start. Some criteria to guide the work would also help: only reform what is essential, considering the benefits and costs of the change; seek true modernity, which includes environmental taxation, the digital economy, the parsimonious use of extrafiscality, the new financing of social security; curb abusive tax planning, which erodes tax bases and generates competitive imbalances.
The theme, however, should not be limited to tax reform, in the strict sense, but should pay attention to issues that are always ignored: tax bureaucratism, insistently alleged as a pretext for propositions and never faced; fiscal federalism, a patchwork quilt that harbors inconsistent criteria for income sharing and suspicious voluntary transfers, and does not know the specification of the powers of federative entities and the cooperation arrangements between them; and pathological proceduralism, the main source of the astonishing volume of litigation and legal uncertainty.
As Mário Henrique Simonsen, a member of the Reform Commission, taught: “If it is well stated, the most difficult problem in the world will be solved. Poorly stated, the easiest problem in the world will never be solved.”

You won't see any country

Culture must always be valued. Poetry, literature, music artfully express the feeling of a people and arouse emotions, giving meaning to situations that reason often cannot understand.

On my last article I used Grande Pessoa to address the issue of ethics (To be great, be whole). In this I rely on Ignácio de Loyola Brandão, in his work “No Verás País None”, to express a touch of perplexity at the latest events that haunt our beloved and suffering Brazil.

There are so many that I would have to write much more than the space I'm given allows. I will limit myself to two themes that exemplify some of the hardships that I follow closely.

We are aware that to achieve the desired development, we must ensure legal security that allows for the attraction of investments, the generation of jobs and income. However, far from advancing in this goal, we are moving away from this goal every day. With effort, dedication and a lot of competence, we are going backwards.

Let's see the tax issue: there is always talk of the urgent need to have a "tax reform" that improves our system, is broad and simplifies the fulfillment of obligations and, of course, does not raise taxes even more.

These complex objectives will only be achieved with a broad debate, with the participation of experts in the intricacies of tax law, businessmen, taxpayer representatives, governments, civil society, politicians and that there is a meeting of accounts, all to assess the consequences, risks and the scope of the measures that will be adopted.

But here comes a package that, far from the necessary caution, promotes severe changes in the tax structure: it alters income taxation; dividends; of retained earnings; non-deductibility of interest on equity; it generates new bureaucratic procedures and will increase the tax burden, burden productive investments and, of course, in the end, consumers.

With a strong reaction from industry, commerce, services, liberal professionals, states and municipalities, opinions were presented by the rapporteur, further confusing what is incomprehensible. It's the "puxadinho" logic. Result: unanimous and cohesive repulsion, contrary to the saying that claims to be “dumb unanimity”.

But everything can get worse. The Federal Chamber decides that this matter must be voted on as a matter of urgency! Impairing a deeper discussion, with studies and technical debates.

Taxpayers and productive sectors were run over. The political logic moves away from society, with populist justifications.

Beside this unusual situation, I point out another absurdity. The Executive Branch proposes a Provisional Measure to profoundly change the structure of fuel distribution. On the one hand, allowing the direct sale of ethanol by the mills to service stations and on the other, authorizing the sale of fuel from a different source than that indicated by the banner of the service station. Hasty and inexplicable proposal.

The simple justification is illusory, the price will fall and the consumer will benefit, as if it were possible to reduce the final price without changing the tax structure that focuses on fuels. These misconceptions will encourage non-payment of taxes, a practice that plagues the entire industry.

It will be very difficult, if not impossible, to oversee the distribution chain and, in the case of the sale of a product different from that of a service station, the consumer will be deceived, as they will have the belief that they are supplying a product from a brand they trust and will receive something that does not know the origin.

This amazing initiative, which is applauded by persistent debtors, has never been defended by the industry nor by consumers. A real mistake.

Some questions: How urgent is it for such a disruptive action to be presented via MP? What are the real interests that motivate it? Have the risks been assessed?

These two examples of sudden legislative proposals remind me of Hugo Carvana's film, starring the late Tarcisio Meira, with the title: “Don't worry, nothing will work”.

Hard times. There are methods in these measures, which burden those who contribute and, without validation in studies, do not meet the legitimate interests of society, the consumer, the productive sectors, in short, those who support the State. And all this in the midst of a pandemic, high interest rates and inflation, high unemployment, institutional split, with the holders of powers in clear confrontation.

We lost the sense of planning, of priority, of doing what really matters and establishing a clear divorce between society and the state. By planting erratic rules, we reap more legal uncertainty.

As a lawyer, I am optimistic, but I have to be realistic. Yes, if we stick to this route, nothing will work and we won't have any country, at least not what we want.

Art has made its warnings, we have to listen and react.

*Edson Luiz Vismona is a lawyer, president of the Brazilian Institute of Competition Ethics – ETCO and the National Forum Against Piracy and Illegality – FNCP. He was secretary of justice and defense of citizenship of the State of São Paulo (2000/2002)

**This is content from Bússola, a partnership between FSB Comunicação and Exame.

Madness without method

“Madness, although it has its method there” was what Polonius had said to Hamlet, according to Shakespeare's narrative.

In the debates on tax reform and related topics, I can see the madness, but I still haven't been able to identify, if any, the method.

It is worth mentioning in these frequent insanities the proposal to create a unique “contribution on goods and services”, contained in bill No. 3.887, of 2020, for which urgency was required in order to subsequently relinquish that urgency under the pathetic allegation of unblocking the vote for “unavoidable” changes to the traffic code.

The project does not even clarify whether the basis for calculating this contribution would be operations or revenue, preferring to delegate the resolution of this dilemma, should the project prosper, to the Judiciary, in a robust contribution to the increase in litigation in the country.

Much has been said about the inadequacies of that bill, but it is worth mentioning the virtue of exposing, on a small scale, the ailments of PEC No. 45, which proposes the institution of a Tax on Goods and Services (IBS) and a enigmatic Selective Tax. We try to cover up these inadequacies by avoiding measuring the repercussions of the projects on prices, sectors and federative entities, under the justification that this information “would not contribute to the debate” (sic).

The most recent pearls of this universe of madness are the disclosure of a preliminary draft supplementary law of PEC No. 45 and discrimination of the sources of financing of the so-called “citizen income”.

The preliminary draft law complementing a Constitutional Amendment Proposal that was not considered by the National Congress, although unusual, helps to reveal the deficiencies of the proposal.

When admitting the vulnerability of VAT to evasion, as a special mention of what happens with this tax in civilized Europe, it is proposed to condition the use of credits to the effective collection of the tax in the previous stage. It is necessary to recognize the originality of the proposal, as well as its surrealism. How could a taxpayer price the goods or services without knowing whether his supplier will collect the tax in the following month?

To manage the IBS, it is proposed to create a National Tax Agency aiming at “implementing cooperative federalism” (sic), made up of employees of the tax administration of the federal entities and directed by a board of directors, chosen by a general assembly, with powers to elect an executive board. This Council would have the competence to issue non-legal rules and proceed with the administrative tax judgment through a body called “Tax Litigation”. There is also an allusion, not translated in the text of the preliminary draft, to a Business Advisory Council. In the history of tax administration, I do not recall a worse proposal than that.

For citizens' income, among other sources of financing, the postponement of payment of precatory payments by the Federal Government was suggested. It is the peak of the season of bad ideas. What is the moral authority of a State that postpones the payment of its debts and charges taxpayers for the timely payment of taxes?

Today, we have more than 4,7 million people infected by Covid-19 and more than 143 thousand deaths, we support a record unemployment rate (13,8%), “we celebrate” the 9,7% drop in the second quarter of Brazilian GDP, agribusiness is impacted by an enthusiastic disregard for environmental policy, there are consistent forecasts about the increase of the population share in conditions of poverty and extreme poverty, the fiscal crisis of States and Municipalities will increase. Despite all of this, we continue, contrary to what is done in the rest of the world, to debate a tax reform that severely harasses economic sectors and raises the price of such essential services, such as health and education, and of books, which enjoy a long-standing tax exemption.

Unfortunately, Brazil does not waste the opportunity to make mistakes.

(*) Everardo Maciel was Federal Revenue Secretary (1995-2002) and is chairman of the ETCO Advisory Council

ETCO President's Message

With the approval of the pension reform, all attention is now turned to tax reform. The time has come for us to resolve the chaotic mess that our tax collection system has become. The theme is of enormous importance for competitive ethics, the business environment and the development of the country. Therefore, one of our main focuses of action this year has been the promotion of debates with authorities on the subject to contribute to the discussions on the reform.

One point to which we are giving special emphasis is the issue of legal tax security, which is not addressed much by the different reform projects. This was the subject of a seminar that we held in June and also our motivation to order a survey from the consulting firm Ernst & Young on Brazilian tax litigation.

The study, which will be released soon, but whose preliminary results are presented in this edition, revealed that the total of taxes under discussion in the different administrative and judicial spheres has already reached the figure of R $ 3,4 trillion, which is equivalent to more than half of the total. GDP of the country.

We also held, in July, in partnership with the Valor Econômico newspaper, the Taxation in Brazil seminar, which added contributions from the economic, legal and tax fields to the debate on reform.

On another front, since May, in partnership with Gazeta do Povo, from Paraná, we have been carrying out the #Dentro da Lei project, which seeks to give more visibility to the problem of the illegal market represented by practices such as smuggling, piracy and counterfeiting of products. We cannot accept what is happening, for example, in the cigarette sector, where the illegal product has already dominated more than half of the market and tax evasion has exceeded tax collection, as shown by a new survey by Ibope that we present in the magazine.

This issue also features an article that I originally published in the Correio Braziliense newspaper to raise awareness among senators about the importance of approving PLS 284/17, which hardens the fight against stubborn tax debtors. Nor is it possible to tolerate this criminal practice that prevails strongly in high taxation segments, such as fuels, tobacco and beverages.

We Brazilians need to understand that we will never have a developed country if we do not assume the defense of ethics and legality as non-negotiable values. Our mission is to fight for that.