Ângelo Ambrizzi
Lawyer at Marcos Martins Advogados
The problems that the Tax Reform proposes to solve are not easy. In addition to the high tax burden to which Brazilians are subjected – one of the highest in the world – we also have complex legislation in this area, which results in laborious and bureaucratic processes that prevent the country from moving forward. To make matters worse, we are facing a pandemic scenario unprecedented in recent history, which could subject up to 14.4 million Brazilians to poverty, according to international studies. Therefore, some lessons need to be learned, such as the fact that raising taxes has never been the way out of economic recovery.
To give you an idea, when the Federal Constitution was promulgated in 1988, marking the return of democratization in the country, our tax burden represented exactly 20.01% of GDP (Gross Domestic Product). By the end of the Sarney administration the following year, this figure had risen to 22.15%, and skyrocketed to 29.91% at the start of the Collor administration. In 2018, tax collection hit an all-time high of 35.07%. This means that, on average, each Brazilian collected the equivalent of R$11,494 in taxes and that around 128 days were worked just to pay taxes. These figures prove the growing increase in tax collection in the country. Meanwhile, there has been no significant improvement in the provision of essential services such as education, health and security. After all, what justifies charging Brazilians even more, especially during such a regrettable and impactful crisis?
There is therefore a great opportunity in the hands of the current Minister of the Economy, Paulo Guedes. His recent announcement to unify Pis and Cofins into a single tax called CBS (Contribution on Goods and Services), has been criticized by some experts, pointing out that the change would end up raising the effective tax burden, especially for sectors such as Commerce and Services. Today, the Pis and Cofins rates are 3.65% for Presumed Profit companies and 9.25% for Real Profit companies. With the change, both would pay a rate of 12%. For industries, the new tax could represent an effective reduction, since most pay around 9.25%, taking into account that the way CBS is calculated could generate a lower tax rate than the current levels.
According to a study by Ibre/FGV’s Fiscal Policy Observatory, the creation of the CBS would increase federal tax collection by around R$50 billion. Increasing taxes is directly related to the planning and development of companies, which also impacts on the final cost of products and harms trade and service provision.
In addition, Brazil’s high tax bureaucracy needs to be tackled. The Tax do Amanhã survey, carried out by Deloitte, shows that a company can spend up to 34,000 hours a year calculating and paying taxes, completing and submitting ancillary obligations and monitoring inspections – all of which is carried out especially by the legal and accounting sectors, which are essential for businesses.
Although there are systems that gather all of a company’s information for these declarations, the work is still mostly manual. The highly complex legislation and the constant updating of norms and rules mean that the majority (95%) of Brazilian companies pay more taxes than they should, according to IBGE/Impostômetro data. The useful life of the company is seriously compromised, causing it to lose agility and competitiveness in the market.
If we want to see our companies prosper in 2021, it is essential that we pay attention to these two points: reducing bureaucracy and reducing the tax burden. What Guedes has presented so far is only the first phase of the Tax Reform – which has already caused fears in some segments.
But we need to be cautious and monitor what the next steps will be. Taxation on payroll, for example, is still undefined, so it is still difficult to predict the real impact of the proposal on companies, i.e. to analyze what the total tax burden will be for each sector.
We are experiencing a stranglehold on companies in terms of fulfilling their tax obligations. It is a great opportunity for this reform not only to reduce tax bureaucracy, but also to clarify the bases of taxation in order to create legal certainty by not leaving room for interpretation of the laws. Only this will give companies the confidence they need to start the new year with good expectations.
