Custo Brasil is one of the main problems faced by the industry in the country

The Brazil Cost is an expression used to define the bureaucratic and structural problems that hinder the country’s growth. According to a study by the Movimento Brasil Competitivo in partnership with the Ministry of Development, Industry, Commerce and Services (MDIC) and the Getulio Vargas Foundation (FGV), the cost of doing business in Brazil is around R$ 1.7 trillion higher than the average for countries that are part of the Organization for Economic Co-operation and Development (OECD).

The complexity of the Brazilian tax system increases the price of products and reduces investment, according to the deputy director of the Tax Law Commission of the OAB-GO, Guilherme Di Ferreira. The expert claims that the amount of taxes harms the country’s growth. The excessive tax burden in Brazil is pointed out as one of the main factors of the so-called Custo Brasil.

“The more companies spend with taxes, the products become more expensive and they stop investing even in their own country or in their companies or in improvements. For this reason, it ends up harming the country’s growth, because the country also needs private companies for its growth”, highlights Di Ferreira.

Federal deputy Vitor Lippi (PSDB-SP), member of the working group that analyzes the tax reform in the Chamber (PEC 45/2019), believes that the biggest challenge for the country’s growth is the simplification of the current tax system. The parliamentarian defends the measure as fundamental for the generation of employment and income.

“The more people who have jobs, the more we have family income, the more these people spend on commerce, on services. This moves the entire Brazilian economy. In addition, we believe that with this we will not only be able to help industries that are already in Brazil, but attract companies from around the world that, as long as we have a good tax system, will certainly be able to choose Brazil to make their new investments”, he points out.

Tax reform

The current Brazilian tax system removes the competitiveness of companies, inhibits investments and limits international insertion, according to the Industry Resumption Plan, prepared by the National Confederation of Industry (CNI). Consumption taxation is identified in the document as one of the main challenges for the growth of the Brazilian economy.

According to a CNI study, “tax residues (linked to PIS/Cofins, IPI, ICMS and ISS) represented, on average, 9.7% of companies’ net revenue in 2021. Between sectors, the accumulation of residues varies : 12% in Agriculture and Livestock; 11.6% in Services; and 7.4%, in Industry (all in proportion to net revenue).”

There are mature proposals for reform pending in both houses of Congress. PEC 45/2019, from the Chamber, proposes to replace five taxes — PIS, Cofins, IPI, ICMS and ISS — with a single tax on goods and services (IBS).

In the Senate, PEC 110/2019 intends to extinguish nine taxes: seven federal ones — IPI, IOF, PIS/Pasep, Cofins, Salary-Education and CIDE Fuels; the state ICMS; and the municipal Tax on Services (ISS). The text provides for the replacement of these taxes by two new taxes: one on the added value of goods and services; and another aimed at certain activities, the Selective Tax, replacing the IPI.

According to the Ministry of Finance, a value added tax allows companies to pay only on the value added to the product or service. The folder states that the unification of taxes brings more transparency, as it is levied on gross revenue and not on all revenue. In addition, the simplification of taxation with the adoption of VAT would generate more efficiency in the organization of economic activity, which stimulates competition between companies and benefits the consumer.