A more rational tax code for Brazil

Por Gilberto Costa / Agência Brasil

Brasília – Recently Agência Brasil talked to three experts on taxes regarding a subject that has been in the forefront of political discussions in Brazil for over two decades: tax code reform. According to the three experts, Arisvaldo Mattos Filho, a lawyer who coordinated an Executive Commission on Fiscal Reform in 1992 during the Collor administration, Ives Gandra Martins, president of the Superior Law Counsel of the Commercial Federation of São Paulo (Fecomercio-SP) and Everardo Maciel, a former head of the Brazilian IRS (“Receita Federal”), the Dilma Rousseff administration will probably just abandon a tax code reform bill that has been in Congress since 2008. That proposal, drawn up by the Luiz Inacio Lula da Silva administration, called for profound, wide-ranging changes in Brazilian tax legislation.

The experts say that what needs to be done is to follow a popular saying to the effect that “sometimes it is better to settle for less” (a loose translation of “o ótimo é inimigo do bom”). The idea would be to implement simple measures that make tax collection more rational while avoiding controversial issues involving states and municipalities, and constitutional changes.

The experts also agree that at the moment, with the government tightening its purse strings, there is no advantage in engaging in the difficult political negotiations that a big tax reform would require.

“Forget the poetry of a grand reform. The times are against it.” Mattos Filho says, as he recommends going after low-lying fruit with a mini-reform of federal taxes. “The tax system is so complicated and penalizes the productive chain so heavily that any improvements, making declarations simpler and calculations more rational, would be considered a success,” he declared. Mattos Filho points out that an estimated 30% of all cases that reach the Brazilian Supreme Court have their origins in tax disputes.

Ives Gandra Martins also opposes a big tax reform. “Any bill that attempts a global solution will quickly be shot down by those opposed to specific items in the reform,” he says. Ives Gandra believes a good idea would be to promote measures that reduce the burden of payroll taxes. “That will create more jobs,” he points out.

The experts all discard any attempts at income redistribution, such as the creation of a Tax on Great Fortunes (“Imposto sobre Grande fortunas IGF”) or an increase in Farm Property Taxes (“Imposto Territorial Rural – ITR”). Ives Gandra points out that in other countries with taxes such as the IGF there was capital flight as a result. “The importance of domestic savings cannot be underestimated, especially as it protects the country from volatile foreign money,” he said. As for the ITR, Ives Gandra observed that its purpose should be to stimulate farm productivity and protect the environment.

According to Everardo Maciel, raising the ITR would just raise food prices. In his comments, Maciel emphasized the social importance of tax revenue and the need to use it for social assistance and inclusion, as well as the public health and education systems. “Fiscal justice is all about how you use tax revenue, not where it comes from,” said Maciel.

Between 1992 and 2008, there have been no less than seven attempts at tax reform in Brazil. A study by the Getulio Vargas Foundation of the seventh attempt (“reforma tributária de 2008”) found that if implemented it would cause an average increase of 1.2 percentage points in GDP growth per year over a period of eight years.

Allen Bennett – translator/editor