Access the new edition of ETCO Magazine here

Check out the new edition (Dec / 2018) of ETCO Magazine, which features as a cover story, the 10 measures to combat the illegal market, in addition to coverage of events and research conducted by ETCO. Read also the unprecedented interview with the president of the advisory council, Everardo Maciel.

Survey shows 10 measures to combat the illegal market that supports organized crime
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Click here to access the digital version of the magazine or if you wish to receive the print edition (*), send an email to etco@etco.org.br

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The new edition of ETCO Magazine marks the Institute's 15 years in the defense of competitive ethics

The special edition of ETCO Magazine marks the Institute's 15 years in the defense of competitive ethics. In a series of reports, the publication brings contributions from authorities from the three branches of government and important names from civil society to improve the country's business environment - with an emphasis on strengthening the legal market and improving the tax system. The magazine also includes the proposals that ETCO defends on these themes, gathered in two manifestos that are being delivered to the candidates who will contest this year's elections.

Click here to access the digital version of the magazine or if you wish to receive the print edition (*), send an email to etco@etco.org.br

Download the pdf version

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Everardo Maciel explains why he doesn't believe in projects that suggest refounding our tax system

THE NEW SEASON OF TAX REFORM

 

by Everardo Maciel *CLICK HERE 3

Tax systems are living models that portray the complexity of economic and social relations in a society. There are many reasons against overly ambitious tax reform claims

 

The imperfection and complexity of the Brazilian tax system, which are, moreover, characteristics common to all tax systems, stimulate a profusion of plastically elegant and disruptive solutions, but which ignore the risks and costs inherent to any change.

Tax systems result from clashes that involve conflicts of reason and interest in parliaments. They are not models, applications or, in the past, works by copyist monks. On the contrary, they are living models that portray the complexity of economic and social relations in a society. They are therefore inevitably imperfect and complex.

This complexity, in turn, is increasing, because tax systems will, over time, incorporate changes - some legitimate, others not - that distort the original conception.Caption Everardo Maciel

Imperfection and complexity stimulate new conceptions aimed at refounding tax systems, in the context of an improbable and little useful idealization.

Peremptory statements are frequent that denounce the complexity, inefficiency and regressiveness of the Brazilian tax system, without there being a minimally consistent debate on the matter.

There are many possibilities for qualifying complexity. What makes a tax system truly complex is the overload of bureaucratic requirements, the profusion of special regimes and the indeterminacy of concepts and procedural delays that lead to legal uncertainty.

Issues such as number of rates or taxes and overlapping incidences are easily overcome by using good computer applications.

Problems exist and will always exist, which is an excuse for continuous action focused on strategic matters, aiming at eliminating or mitigating them.

The problems of ICMS and PIS / Cofins are remedied with surgical changes.

There are many reasons against overly ambitious tax reform claims.

Changes have costs and risks. Normative stability, in the tax sphere, is a relevant asset for deciding on private investments.

In an interview with Veja (27/09/2017), Eldar Saetre, president of Statoil (Norwegian state oil company), stressed that his major concern in relation to Brazilian taxation was unpredictability. He added that, in Norway, the taxation of oil activity was high (78%), but stable.

In an interview with the Financial Times, published in Valor (28/04/2017), Warren Buffet, one of the largest investors in the world, said: “People invest when they think they can make money, and not because of taxation”.

In addition, there are risks to the treasury and the taxpayer. Any change has repercussions on tax rates and tax bases, in an unpredictable way and differently on taxpayers.

Ultimately, major changes can take on an adventurous character. Anyway, systems, like the tributary, are only well known with real mass.

In everything, we cannot forget our undying vocation to copy models from other countries, built under peculiar circumstances and different from ours. It is cultural servility, opposite and equally mediocre of xenophobia in the field of ideas.

The most serious thing is that we seek to copy models in frank obsolescence, such as the Value Added Tax (VAT), which is complex, vulnerable to evasion (the carousel or banknote ride is a well-known evasion modality in Europe) and unable to assimilate properly the digital economy.

It is good to pay attention to what is being discussed at the border of tax policy. With a solid academic basis, the United States is already discussing the formulation of a model for taxing consumed income, which aggregates VAT and Income Tax characteristics, innovating them.

Meanwhile, in Brazil, little or no attention is paid to our most severe tax illnesses: bureaucracy, conceptual indeterminacy and the tax process.

Bureaucracy reigns triumphantly in the tax system. Its pearls are multiple registration, negative certificate requirements, tax refunds, obstacles to compensation, etc.

It is certain that conceptual indeterminacy will always exist, demanding the clarifying intervention of Justice. After all, there is no closed concept system. What is reprehensible is exaggeration.

We have not yet pacified concepts such as billing, gross revenue, indemnity for tax purposes, irregular dissolution of companies, joint liability of partners, tax substitution, abusive tax planning, etc. It's an absurd.

The process, from launch to execution, is exquisite in its slowness and inefficiency.

In the Union, the amounts under administrative and judicial discussion added to the credits recorded in active debt correspond to more than double the annual tax collection.

A report produced by the National Council of Justice (CNJ) shows that of the impressive 80 million cases pending in court, approximately 30 million are related to tax enforcement.

Although it contradicts the bureaucracy and the litigation industry, the real reform is to eliminate these tax illnesses. However, it lacks the charm of designing a new, unpredictable and unnecessary tax model.

Ambitious claims, by exacerbating tax conflicts, including in the context of fiscal federalism, always end in impasses, in addition to removing the focus of Brazilian tax illnesses. It is worth remembering Einstein's teaching: “it is insanity to keep doing the same thing and expect different results”.

 

Research shows relationship between tax burden and smuggling

CLICK HERE 3
Work compared products with opposite trajectories in relation to the level of taxes and the size of the illegal market

Tougher laws, stricter policing at borders and permanent inspection at points of sale are indispensable weapons to combat smuggling. A survey released in November calls attention, however, to another factor that is at the heart of the problem: the difference in its tax burden in Brazil and in neighboring countries, especially Paraguay.

The study “The Economic Logic of Smuggling” was carried out by the Institute of Economic and Social Development of Borders (IDESF), an association that studies the problems of cities located in border regions. He makes a comparison between the computer sector and that of cigarettes, which in recent years have had opposite trajectories in relation to the tax burden and smuggling.

Until the early 2000s, the computer segment was one of those that suffered most from the illegal trade. In 2005, Law 11.196 / 2005, known as the Lei do Bem, was passed, which zeroed PIS and Cofins rates in the sector. Since then, the graphs show the growth of national production and the fall in the number of seizures of smuggled computer items and leave no doubt about the cause and effect relationship between the two factors.

In 2006, seizures of computer products made by the Federal Police - which always represent a minuscule portion of smuggling - were estimated at US $ 12 million. In the years that followed, that number dropped steadily, ending 2016 below $ 2 million. In the same period, the production of Brazilian industry jumped from less than 4 million to more than 12 million computers per year, with sales jumping from R $ 4 billion to R $ 10,7 billion.

COMPUTER GRAPHIC

The cigarette sector is experiencing a reverse movement. Since 2012, taxes on the product have been rising year on year due to a tax policy supposedly designed to discourage consumption via price increases to consumers. According to the IDESF survey, however, the main consequences were the fall in national production and the increase in smuggling - with all the losses that this type of crime causes, including loss of revenue and encouragement to organized crime.

ALMOST HALF OF THE MARKET

From 2012 to 2016, the price of Brazilian cigarettes rose 148%, while Brazilian production fell 40,29%. In contrast, contraband exploded. In 2012, seizures of cigarettes brought illegally from Paraguay corresponded to 3,78% of national production. Three years later, this index had already reached 17,7%, as found by IDESF.

The figures presented in the study coincide with what has been observed in Ibope research on the consumption habits of Brazilians, including that of cigarettes. The survey has revealed an increasing presence of contraband brands, which represented 34% in 2013 and reached almost half of the country's consumption this year (48%). In the same period, the sector's tax burden rose from 65% to 71%.

The IDESF study was based on information from several sources, including tax analysis, price surveys in Brazil and Paraguay, police inquiries and interviews with people involved in the illegal trade. The data show that the smugglers' profit is directly linked to the difference between the levels of taxes practiced in the two countries, which today is higher than 50% in the case of cigarettes and 14% in computer items.

tax burden chart

PROFIT UP TO 231%

Because of this advantage of the illicit product, criminals pay R $ 0,70 per pack of cigarettes in Paraguay and resell it in Brazil for R $ 2,40, at wholesale prices. Transportation costs, grooming of drivers, security guards and other contraband operators and expenses with corruption of inspectors and police consume 22,4% of this amount. The result is a return of 179% to 231% on the invested capital. In the same comparison, computers provide a maximum margin of 13,34%, which can even be negative. The product has become unviable for criminals.

IDESF President Luciano Barros believes that Brazil will not be able to win the war on smuggling unless it takes into account the tax issue. "The government has to understand that there is an economic logic to this type of crime," he says. “It is necessary to look beyond passenger economic benefits and measure the impacts of these decisions on the lives of Brazilians. It is no longer possible to play blindly in favor of smuggling in the name of goals that do not take into account social aspects, especially of the border populations, who are those who suffer these consequences in the most direct and cruel way. ”

 

Tax burden here and in Paraguay

The new edition of the ETCO Magazine is now available

ETCO MAGAZINE | December 2017 nº 21 - Year 14
You can read the magazine here in the format FLIP,  download the file at PDF   or read the articles individually on the website.
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It proposes tough law against persistent tax debtor

Senator Ana Amélia talks about a project that authorizes special taxation against those who use defaults to practice unfair competition. Read exclusive interview that she gave to the ETCO Magazine

Also in this edition:

The economic logic of smuggling

Study shows how excessive taxation favors organized crime. Check out.
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ETCO Magazine Special Edition 10 years

In addition to the reflections presented in articles by Jorge Hage, Eliana Calmon, Claudia Costin, Ricardo Young, Maria Helena SF de Santana, Roberto Da Matta, Sergio Fausto, Renato Janine Ribeiro, Fábio Barbosa, Eurico Marcos Diniz de Santi and Mariana Pimentel Fisher Pacheco, ETCO Magazine nº 20 shows, in its cover story, how the Institute has been gaining weight and importance in the area of ​​competitive ethics.

Ethics also sets the tone for the interview by writer Luiz Ruffato, who talks about his work “Do you know who you're talking to?”, An anthology of short stories by various icons of Brazilian literature from different eras on corruption and power.

Finally, analyzes of the results obtained by the six important sectors of Brazilian economic activity that make up the six sectoral chambers of ETCO, and the challenges they will face in the coming years.

Read the ETCO Magazine edition 20 in PDF

The flash version can be accessed here