Tax reform: “We cannot give up simplification”, says Duchess of Tax
During the conversation, Gontijo explained the causes behind the “tax madhouse”, what the country has to gain from the modernization of taxes on the consumption of products and services and stated: there has never been a more propitious moment for the approval of the tax reform like now.
Check out the full interview with the expert.
Brazil 61: The House Tax Reform Working Group presented the report with the guidelines for the reform PEC. Will you go now?
Maria Carolina Gontijo: “I think we’ve never had an environment so prone to “now go”. People started to become aware of how difficult the Brazilian tax system is that this ended up becoming not only a movement of society, but also a movement of politicians themselves. People talk to me like this: ‘Do you think it’s going to happen now?’
Brazil 61: The Brazilian tax system is so complex that it has become known as the “tax madhouse”. In your opinion, what are the main problems with this consumption tax collection model?
M.C.G.: “One of our great difficulties is that our system was not thought of as a system and we created little pulls along the way whenever we had an urgent need. We needed a source of revenue and ended up creating some kind of consumption tax. I usually joke that buckets were being placed to hold some leaks. We were creating some things to try not to face a reform, which is a complicated subject, which involves many interests”.
Brazil 61: What were the pulls that the country created over the years?
M.C.G.: “What do we have? A tax on services that is at the municipal level, the ISS; a (tax) on goods, which is the (state) ICMS, but there are also federal taxes: PIS, Cofins and IPI. cumulative, such as PIS and Cofins. Others have a non-cumulative system. We created such a huge tangle of possibilities in this system, that it ended up becoming a house of cards, in which changing a letter we end up changing the whole system. See that last year the government tried to reduce the IPI for some products and ended up bumping into the issue of the Free Zone of Manaus and, then, the IPI of products that are made in the Free Zone of Manaus could not be reduced. There are so many taxes on the consumption, that absolutely no one really knows how much tax they pay when they are consuming something. So, you go there and buy something at the supermarket, you don’t know how much, in fact, there is taxes there. It is not a transparent system”.
Brazil 61: The proposals that are most advanced in discussions in the National Congress for tax reform propose the replacement of the five main taxes on consumption by a single tax, the Tax on Goods and Services (IBS). Can they solve or minimize the complexity of the current system?
M.C.G.: “Without a doubt. And I think they have a very important point, mainly, which is to transform the system into something more transparent. Today, we have some taxes that, if you increase them, people cannot understand exactly what it was an increase in the price of the product. At the beginning of the year, several states began to practice higher rates of ICMS on fuel. I did not see anyone in these states creating any kind of protest for this. Why? People cannot effectively understand where that that is impacting their daily lives. (The reform) will make this transparent, because from the moment that a certain governor needs to increase the rate, that will be clear and people will be able to effectively collect these taxes that they pay”.
Brazil 61: Is it possible to call a tax reform a reform that does not reduce the burden of taxes on citizens and the productive sector?
M.C.G.: “I have no hope of any kind of reduction in the tax burden. What we need is to create this environment for simplification, because paying a lot we are already paying. taxation’, we know that there is no room for this. We need to be rational on this point. We need to simplify, because from the moment we simplify, there will be a large space for economic development gain. There are numerous studies about: improving the economy, then we see what we can do to equalize this load so that it is not so high. I hit a lot on the issue of simplification and the issue of people’s perception. If we have that, I think which is already a step towards a system that is fairer.”
Brazil 61: Do you believe that, even without reducing the tax burden, the mere simplification of the system will contribute to reducing costs for companies?
M.C.G.: “We have not only companies with countless people focused on calculating and fulfilling ancillary obligations, which are the information that companies need to provide to the tax authorities. We have the part where companies plan the tax issue. All the effort that is being put there to try to determine or correctly report taxation is an economic force that is in the wrong place. And simplification already improves everything, including the issue of legal certainty. Today we have a gigantic, absurd tax dispute that slows the country down , why? We see discussions that take many years. This issue of legal uncertainty is very bad for us. First, because it ends up scaring away investment, because if we are here and think that this system is a madhouse, imagine who it’s coming from outside. We pay a very high price for this complexity that we could be investing in other things. Just for us to do this will be a tremendous gain”.
Brazil 61: For all these costs with ancillary obligations, in addition to the number of main obligations and different legislation, Brazilian companies waste a lot of time and spend a lot to produce, which makes goods more expensive and makes it difficult for them to compete internationally. Do you believe that this problem will be solved with this proposed simplification?
M.C.G.: “I think that not only will it improve, but this simplification will naturally end up reducing this issue, especially in tax litigation. We have the PIS and COFINS issue. give credit? Especially because we are in an economy that is changing every day. If we continue to stand still in time and waiting that many years later the Supreme Court will decide whether software is a service or a commodity, it delays our economic development in a way that it’s hard even for us to measure. And then we’re left wondering if Crocs, for example, are rubber shoes or waterproof sandals. In the end, it’s funny, we wear them, but we’re laughing at our own misfortune, because this type of discussion is very bad for the country So, simplification is essential for companies, mainly so that they can focus on something else and not manage litigation. Having a simple system is what we need if we want to have a strong and respected economy in the rest of the world”.
Brazil 61: What do you think would be a good tax reform?
M.C.G.: “What we mainly need is simplification. We cannot run the risk of trying to carry out a reform and then having a million different rates, a million different regimes, because each sector will ask for its own, we know how that’s how the lobby works. We can’t try to complicate the system under penalty of throwing all our effort away. We need to keep it as simple as possible. The ideal reform would be a simple IVA, not a Dual IVA. But we need to do what you can do. Brazil is a country of continental dimensions. So, our challenge is not small. It’s as if we were trying to reform an entire continent. We know it’s complicated. If Dual IVA is not ideally, that’s what you can do and it improves a lot. This is the main point for me: we can’t give up simplification.”
Tax reform: House of Representatives WG report proposes Dual IVA
By Brasil 61
