Tax reform: focus on consumption limits reduction of inequalities

Oxfam Brasil, a non-profit organization that works to combat inequalities and poverty, assesses that the result of the tax reform working group, focused on taxation on consumption, brings limited progress in relation to combating inequalities in the country.

The organization – Oxford Committee for Famine Reliefe/Oxford Committee for the Relief of Hunger – is one of more than 70 bodies that have signed the Manifesto for a 3S Tax Reform – Healthy – Solidarity – Sustainable. According to the document, the tax reform must reduce Brazilian inequalities by replacing mechanisms that promote the concentration of wealth by others that allow its redistribution with “the reduction of the tax burden for the poorest and the highest taxation of high incomes and wealth” .

The coordinator of Social and Economic Justice at Oxfam Brazil, Jefferson Nascimento, assesses that parliament has focused on simplifying the tax system, which he considers important, but insufficient to combat inequality in tax collection.

“The tax system increases inequality because most of it is concentrated in indirect taxes, on consumption, which penalizes those who earn less. We are talking about simplification, but we are not talking about reducing the consumption load. This limits the tax system as a mechanism for reducing inequality”, highlighted the doctor in International Law from the University of São Paulo (USP).

To facilitate the approval of the reform, the government’s schedule sliced the tax reform. With that, the first vote should be limited to taxes on consumption and, only after approving this first stage, should the tax reform on income and assets be put on the agenda, which affects proportionally more in the richest groups.

For the professor at Unicamp’s Institute of Economics, Marco Antônio Rocha, the reform on income and assets has the power to reduce the so-called regressiveness of the Brazilian tax system. A tax is regressive when it does not take into account the taxpayer’s income, falling equally on those who receive 1 or 10 minimum wages. To be progressive, the tax must be higher for those who earn more.

Even so, the specialist points out that the reform on consumption can help to reduce “a little” the inequality of the Brazilian tax system, if it succeeds in transferring taxes from the industrial sector to other sectors. “The consumption basket of the poorest population is more concentrated in manufacturing goods than in services. And the service sector has a lower incidence than industry. By leveling this, you reduce the tax burden of the poorest”, says the Unicamp professor, for whom Services and Agriculture pay little tax in Brazil when compared to Industry.

Taxes on consumption, income and wealth in Brazil

Second IRS study44.02% of all Brazilian tax burden in 2021 are taxes on Goods and Services, while only 4.87% were levied on wealth and 23.92% on personal income.

When comparing the origin of taxes in Brazil with the countries of the Organization for Economic Cooperation and Development (OECD) in 2020, it appears that the tax burden on income, profit and capital gains in Brazil is 6.9% of GDP ( Gross Domestic Product, sum of all goods and services produced in the country), against 10.6% of GDP on the OECD average. The property tax in Brazil (1.5% of GDP) is similar to the OECD average (1.8% of GDP).

On the other hand, the tax on goods and services in Brazil (13.5% of GDP) is higher than the average of OECD countries (10.8%).