This post is an appeal.
A plea for help, an SOS, a plea for mercy on behalf of millions of people who are victims of one of the worst taxation systems that could be conceived for a nation.
There is, therefore, nothing new when we say that the Brazilian tax system is, with forgiveness for the words that I think are most appropriate, a big mess, having practically all the defects that a system like this can have, highlighting that:
- It's extremely complex. On average, a Brazilian company needs almost 1.501 hours of work per year to carry out all internal and external procedures to pay its taxes. The data is from the most recent World Bank Doing Business Ranking.
- It is not isonomic, given that it treats equal phenomena in different ways (eg, two companies in the same sector that have different tax incentives).
- It is not transparent, as there are cumulative taxes and multiple rates that confuse taxpayers, who do not know how much tax they actually pay on their purchases.
- It is not neutral, as it influences economic decision-making that would be irrational in the absence of taxes. The most obvious example we have in logistics is the tours that trucks carry out between states far from consumer centers due to ICMS incentives.
The consequences of these problems are the great loss of productivity, legal uncertainty, increased bureaucratic costs, and even damage to the environment, factors that are all inhibitors of economic growth and development.
Behold, at the beginning of this 2019 that is coming to an end, a hope emerged: the PEC 45/2019. Elaborated by economist Bernard Appy and spearheaded in Congress by Deputy Baleia Rossi, the proposal promised to solve all these problems, simplifying our weakened system with the following proposals:
- Unification of five taxes (IPI, PIS, COFINS, ICMS and ISS) into just one, called IBS (Tax on Goods and Services), to be shared between states, municipalities and the Union. Thus, the 27 existing laws for ICMS and more than 5.500 for ISS would be transformed into one, greatly simplifying understanding for companies.
- Taxation always at destination. This change would put an end to the tax war (also explicitly prohibited in the proposal) since taxation would depend only on the location of the final consumer, therefore making no difference to the location of the origin of the product or service provider. The amendment also exempts exports.
- Uniformity of rates. Today, rates vary greatly according to the type of product. For IPI alone, there is a TIPI table (IPI Incidence Table), which has more than 400 pages ranking almost every product out there. The classificatory complexity is comical, as shown by the example of butter:
“'Butter' means natural butter, whey butter and 'recombined' butter (fresh, salted or rancid, even in hermetically sealed containers) derived exclusively from milk, the milk fat content of which is equal to 80% or more but not more than 95% by weight, a maximum non-fat milk solids content of 2% by weight and a maximum water content of 16% by weight. Butter does not contain emulsifiers, but may contain sodium chloride, food coloring, neutralizing salts and harmless lactic bacteria cultures;”
Naturally, such specificities reduce transparency for the consumer (who does not know the rate on each product), in addition to encouraging companies to “fit” their portfolio, turning horses into unicorns, in order to reduce the incidence of the tax. The single rate does away with that.
The proposal presented is very good, and suggested a relatively quick transition of 10 years of implementation of the new tax.
Unfortunately, however, several other proposals have been added to Appy's initial idea in recent months, coming from different entities, which mitigate its benefits. The Senate presented another PEC, which is similar in the sense of the unification of acronyms, but maintains the prerogative of incentives and differentiation of rates. The state governors also made another suggestion, maintaining, for example, the onerous incentives of the Manaus Free Trade Zone. The Federal Government itself was to send its proposal, but it faces several other challenges, such as compliance with the spending ceiling, and has not yet presented its formal text. Gradually, it seems that the excellent proposals of PEC 45 are losing strength in the face of political interests, and the maintenance of “what is there”. Every now and then, ideas appear that would make the problem even worse, such as the taxation of financial transactions (à la CPMF), which would cause even more distortions in the economy, such as encouraging unnecessary verticalization of production. At least this suggestion seems to have been aborted due to resistance from the president, but it is astonishing all the same.
Due to this resistance, I resume the tone of prayer, so that those responsible for the legislative process approve a change in the system that is disruptive as it needs to be. That it be simple for everyone to understand, that it be totally non-cumulative so as not to burden production chains and that it be as neutral and isonomic as possible, so as not to punish the most productive activities and promote free and fair competition.
Brazil cries out for this.
Amen!
Sources:
https://legis.senado.leg.br/sdleg-getter/documento?dm=7977850&ts=1567691312569&disposition=inline
https://oglobo.globo.com/economia/estados-fecham-proposta-alternativa-de-reforma-tributaria-23924068
Fernando Chalréo
He has been working on consulting projects in Logistics and Supply Chain for 5 years, with experience in companies in the consumer goods, retail and food and beverage sectors. Types of projects already carried out: Sales & Operations Planning, Inventory Management, Network Planning, Business Process Review, Logistics Indicators and Transport Management
