Angelo Ambrizzi
Lawyer at Marcos Martins Advogados
The need for tax reform is palpable in Brazil. In addition to making our products increasingly expensive and reducing the population’s purchasing power, excessive taxes have a number of drastic consequences for the Brazilian economy – discouraging domestic and foreign investment and, above all, opening doors to illegality by encouraging a growing wave of tax evasion and fraud. The situation is drastic and, in order to avoid further damage in the short and long term, we need to address the issue with the attention it demands.
Even in a scenario of strong global crisis, 2021 was the year in which our Federal Revenue Service collected the most taxes. Around R$1.685 trillion was accumulated in this period – a record that represents an increase of 18.13% compared to 2020, according to data from the agency itself. The main reason for this milestone is the stability of the country’s tax collection system.
Brazil has maintained a historical average tax burden of around 40% since 2012. Even with a tax burden considered high, the expected return in public services and investments is very low, due to the lack of efficient public policies.
Considering the volume of taxes paid versus the low return on public services, this opens the door to possible fraud and evasion practices.
Fraud or evasion can occur directly or indirectly, the former being when the taxpayer wants to commit any illegal act to avoid paying taxes.
In addition, recognition of fraud can occur when the IRS does not agree with tax planning movements and considers the operations carried out by the taxpayer to be fraudulent.
There is a substantial difference between the two situations mentioned above: in the first case, the taxpayer wants to manipulate or even breach tax legislation, while in the second case, there is no intention to circumvent the legislation, but only to find ways of reducing the tax burden within the legal limits.
In practice, tax planning represents legal alternatives to reduce the tax burden and continue the business operation.
At a time of uncertainty such as the present, it is understandable that many companies choose to analyze their operations and check whether it is appropriate to carry out some kind of planning, even if they know that the IRS may or may not agree later.
A possible tax reform with clearer rules and lower percentages could prevent this type of situation, which generates wear and tear, risks and legal uncertainty.
Another recurring movement in a scenario of lack of economic growth is the company’s option to declare its debt and not pay it, causing its level of tax liabilities to increase, the resolution of which will be to try to settle it in the medium and long term.
These three situations, which occur frequently, reveal the complexity of tax legislation and the high tax burden as the main factors encouraging fraud, either directly or through tax planning.
Therefore, immediate comprehensive tax reform is needed, both to simplify tax legislation and the way it is calculated, as well as a significant reduction in tax rates or the field of incidence for collection purposes.
Ultimately, the aim is to simplify the tax system with a focus on relieving production and consumption.
About the author:
Angelo Ambrizzi is a lawyer specializing in Tax Law from IBET, APET and FGV with Extensions in Finance from Saint Paul and in Turnaround from Insper and Leader of the tax area at Marcos Martins Advogados.
