By Angelo Ambrizz
Can you imagine a small industrial production area being able to generate wealth for the whole country? In Brazil, the Manaus Free Trade Zone can be seen as a great example of a physical environment with economic incentives, which, if replicated in other regions, could positively help the economic scenario in which we live
Proof of this can be found in the data released by the Superintendence of the Manaus Free Trade Zone – Suframa, at the end of 2020 In the midst of all the economic instability caused by the pandemic, the center earned R$95.49 billion between January and October – an increase of 9.71% compared to the same period in 2019
The economic success of the free trade zones is due to their very simple but highly efficient system: encouraging the installation of industrial centers in the region, in exchange for exemption from the country’s main consumption taxes – the IPI (Tax on Industrialized Products) and the ICMS (Tax on Operations relating to the Circulation of Goods and the Provision of Interstate and Intermunicipal Transport and Communication Services).
With so many proven benefits, the big question is: why aren’t there other free zones in Brazil? There are several answers, but I believe that the most coherent one lies in the tax system’s logic of collecting and not encouraging the generation of wealth
The Brazilian tax strategy to increase revenue is to increase the tax burden, rather than encouraging economic growth so that the new wealth generated increases revenue, even with a lower tax burden than the current one This kind of government attitude is only short-termist
The big problem with the tax equation used in Brazil is that it produces a negative curve instead of a prosperous one, i.e. the high tax cost does not boost growth, but rather flattens the economy This is because the tax burden raises prices and makes it unfeasible for the population to consume or to consume less
In 2019, for example, the country’s tax burden reached a record high of 35.17% of GDP, according to a study by economists José Roberto Afonso and Kleber Pacheco de Alves The last peak was in 2008, at 34.64%
We urgently need a comprehensive tax reform to change this negative strategy for the economy once and for all The most viable way forward is by reducing the tax burden and consequently lowering the prices of products and services, which will increase consumption, generating a virtuous cycle of tax collection in the country
The creation of new free zones would be a great way to stimulate this change and the economic boost that every country needs Another point of implementing a free trade zone is the regional development brought about by the demand for skilled labor, as well as the structure of roads, hotels, among others
In addition, free zones also encourage foreign investment in the country, since the existence of legislation that encourages tax benefits for a certain period creates legal certainty and predictability for potential investors
The creation of new free zones can go a long way towards improving the country’s economic situation For this to happen, however, there needs to be alignment between the Union, states and municipalities, with the short-term premise of reducing the tax burden through tax incentives In the long term, these will contribute to an increase in the country’s wealth and, consequently, an improvement in the amount of tax collected
For Brazil’s political culture, it may seem like a bold proposal, but it is the most efficient tax order
Angelo Ambrizzi is a lawyer specializing in Tax Law from IBET, APET and FGV, with an Extension in Finance from Saint Paul and in Turnaround from Insper and Head of the Tax area at Marcos Martins Advogados.
About Marcos Martins Advogados
Founded in 1983, Marcos Martins Advogados is highly regarded in the areas of Corporate, Tax, Labor and Business Law Based on values such as commitment, ethics, integrity, transparency, responsibility and the constant specialization and improvement of its professionals, the firm positions itself as a true partner for comprehensive solutions for clients
Source: LEXPRIME Jorna
