“The discussion on Brazilian Tax Reform could be carried out in a much simpler, calmer way and without major trauma. Most of what is intended to change in this reform could be done through infraconstitutional legislation without attacking the Federative Pact, respecting the country’s institutions and federative organization”. The analysis is by professor Marcos Cintra, vice-president of Fundação Getúlio Vargas (FGV) and former secretary of the Federal Revenue, who this Tuesday (26 ) participated in the lunch meeting promoted by the Union of Vehicle Dealers and Distributors of Rio Grande do Sul (Sincodiv/RS) in which they debated the “Economic scenario, fiscal risk and tax reform”. For Cintra, simplicity and expansion of the basis for reducing rates for those who are paying should be the main priorities in the discussion of the country’s tax system. The vice-president of FGV states that the tax reform under discussion does not guarantee neutrality. Cintra highlights that it shifts the tax burden very strongly from some sectors to others and states that municipalities are the biggest losers from the tax system.
Jornal do Comércio – Is the Tax Reform being discussed in Brazil a very different reform than any other the country has ever had?
Marcos Cintra – It is not a different tax reform. It is a reform that could be done in a much simpler, calmer way and without major trauma. Most of what is intended to change in this reform could be done through infraconstitutional legislation without attacking the Federative Pact, respecting the country’s institutions and federative organization. It is moving mountains to make reforms that could be carried out in a much more objective and more faster if it were done by legislation. The second major aspect is that this tax reform does not guarantee neutrality. It shifts the tax burden very strongly from some sectors to others. In other words, there will be big winners and big losers and this makes the reform very controversial, and consequently less desirable than it could be.
JC – What should be prioritized in Brazilian tax reform?
Cintra – The main search for simplification of the tax system should be prioritized. Both Value Added Tax (VAT) and Income Tax can be simple or complicated depending on the tax administrative process. Brazil is a country that apparently likes bureaucracy and complexity a lot. Taxpayers seek greater simplicity, more transparency, more objectivity and less litigation. Brazil’s tax burden is high, but we need to make it simpler. We need to reduce the tax burden by bringing into the tax universe those who evade and those who are evading or working informally, which is a large segment of the Brazilian economy.
JC – What are the advantages of states and municipalities with tax reform?
Cintra – The states will basically continue with their main tax, which is the ICMS, now expanded with the incorporation of the ISS. From a management point of view, the municipalities are the big losers, but not all of the 5,500 municipalities, of which 450 or 500 are large and medium-sized ones that depend heavily on the ISS with increasing revenue. These municipalities will lose this tax and will become minority partners in another tax, the IBS, over which they will not have total control. Small municipalities will make gains and will have revenue that they did not have before – municipalities did not receive a share of the ICMS. It is a tax reform that cannot guarantee neutrality even for municipalities. There will be largely winning municipalities and largely losing municipalities and this is all very bad for Brazil.
J.C. – Will the tax reform model debated in Brazil change the Federative Pact?
Cintra – The model profoundly affects the Federative Pact because it takes tax jurisdiction away from states and municipalities. In reality, the original project also wanted to centralize the Union’s taxes. However, the federal government did not allow the management of its taxes. The states and municipalities were unable to resist and this is a change in the Federative Pact. Constitutionally, states and municipalities have very specific tax powers that they no longer have as these taxes will be managed by a unit and no longer by federated entities.
J.C. – Why do you say that the tax reform will throw Brazil into a “sea of uncertainty”?
Cintra – This will happen because everything is being referred to the Complementary Law. We are discussing some concepts that are controversial and should be discussed in detail. For example, what the tax rate will be. Will some sectors have a reduced rate and how much will it be reduced? This insecurity will only be resolved when we begin to discuss the operational details of the tax system in 2024 and 2025.