Tax reform keeps Brazil among the countries with the highest weight of consumption taxes

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A study by the Federal Revenue on the tax burden shows that, in 2020, collection of 13.5% of GDP on consumption in Brazil exceeded the OECD average and countries such as the United Kingdom (10.1% of GDP), Canada (8. 8% of GDP) and Chile (10.6% of GDP). The tax reform, which is being debated in the National Congress, keeps Brazil among the countries with the greatest weight of consumption taxes in the collection. The change, whose guidelines were presented in Congress this Tuesday (6), aims to change taxation precisely on consumption. But it does not intend to change the value of resources that the country exploits this collection base. According to data from the Federal Revenue Secretariat, R$ 1.29 trillion were collected in consumption taxes in 2021, equivalent to 14.5% of the Gross Domestic Product (GDP). This represents 44% of all revenue recorded in the year before last, which totaled 2.93 trillion — equivalent to 32.95% of GDP. In 2020, the total load was at 30.91% of GDP. Total Brazilian tax burden Federal Revenue Secretariat The five taxes involved in the tax reform (PIS, Cofins, IPI, ICMS and ISS) collected the equivalent of 13% of GDP last year. They will be replaced, in the tax reform, by a Value Added Tax, which can be “dual” but will not be cumulative, and also by a selective tax (on cigarettes and alcoholic beverages). In order to keep the collection on consumption stable, estimates indicate that the rate of the future Brazilian VAT will be 25%, one of the highest in the world. The consequence of the greater concentration of the Brazilian tax burden on consumption in Brazil is the high degree of “regressivity” (proportionally more is collected from those who earn less). The logic is that, if the tax is the same for everyone, it consumes a larger share of the income of those who earn less. “Innumerable studies show that Brazilian taxation is profoundly regressive, as it burdens the poorest much more than the richest, proportionally to the income of each one, that is, it is a factor that deepens social inequality”, evaluated the Instituto Justiça Fiscal , a non-profit civil association. International comparison For an international comparison, the Federal Revenue used data from 2020, when the collection on consumption in the country represented 13.5% of GDP. Brazil was above the OECD average, made up of more developed countries (10.8% of GDP), as well as countries such as the United Kingdom (10.1% of GDP), Canada (8.8% of GDP) and Chile (10.6% of GDP). Tax burden on consumption Federal Revenue Study If Brazil had taxed consumption at the OECD average level, that is, at 10.8% of GDP, around R$ 200 billion less in taxes would have been levied on products and services in the year 2020 in the country. The tax reform rapporteur, Deputy Aguinaldo Ribeiro (PP-PB) agrees that taxation on consumption is high in the country, but argues that there is no way to reduce it at this time. “It’s a change in the tax system. How are we going to unify this base with the obligation to maintain the load, and not increase it? If we could reduce it, we would reduce it. But it’s not possible now, because the state is too big”, said Aguinaldo Ribeiro last week . The extraordinary secretary of the Ministry of Finance for tax reform, Bernard Appy, said that the current situation of public accounts, with an estimated shortfall of more than R$ 130 billion this year, does not allow us to be irresponsible and reduce the burden on consumption this year. time. “Tell me where you’re going to get the resource? In terms of consumption, the commitment is to maintain the load, be it taxation on consumption, PIS, Cofins, IPI, ICMS and ISS will be maintained during the transition. The ideal in the long term is to reduce taxation on consumption, which is very high in Brazil, but we are in a fiscal situation that does not allow you to be irresponsible”, evaluated Appy, from the Ministry of Finance. He added, however, that reducing consumption in the country is a “medium-term objective”, that is, for the coming years. “Now, if the tax reform has a positive effect on growth, or even with changes in the IR that correct distortions, sometimes a space opens up that allows you to exempt consumption”, declared the secretary. Greater weight for sectors Sectors of the economy, such as services and agriculture, which represent around 70% of the Gross Domestic Product (GDP), claim that the tax reform on consumption will increase the weight of taxes on their activities. Luigi Nese, president of the National Confederation of Services (CNS), estimated that the proposals under discussion will at least double the sector’s tax burden, generating an immediate impact on prices, if passed on to the consumer, of 10%. Guilherme Mercês, Director of Economics at the National Confederation of Trade in Goods, Services and Tourism (CNC) cited a study by the entity according to which the proposals under discussion would generate an increase from 84% to more than 188% in taxation on the services sector. Coordinator of the Economic Nucleus of the National Confederation of Agriculture (CNA), Renato Conchon, informed that the entity supports the carrying out of a tax reform, but recalled that a good part of the sector’s production, destined for external sale, or products from the basic basket, pay taxes under current rules. Income taxes While taxation on consumption is considered high in Brazil, as in the case of payroll, other taxation bases, such as income and assets, have values ​​below the world average. At 6.9% of GDP in 2020, the income tax burden on Basil was well below the OECD average (10.6% of GDP) and more developed countries such as Canada (16.7% of GDP) and France (11.9% of GDP). Taxation on income in Brazil Study of the Federal Revenue The federal government has said that it intends to deal with changes in the Income Tax only in the second half of this year. In January of that year, during the World Economic Forum, held in Davos (Switzerland), Oxfam, an independent non-profit organization, recommended increasing taxation of the super-rich. Increasing taxation on income is one of the recommendations of analysts to tax the richest and reduce social inequalities. Among the possible paths are: Resuming the collection of Income Tax on the distribution of profits and dividends from companies to individuals. Corporate profits are already taxed in Brazil, but their distribution to individuals, since 1996, is tax-free – something that does not happen in most countries. This is considered a jabuticaba of the Brazilian economy, as the vast majority of nations tax the distribution of profits and dividends. Establish a range, and a higher tax rate, for the IRPF. Currently, the highest rate in Brazil is 27.5%, while it exceeds this level in developed countries. In the US, rates range from 10% to 37%. In Portugal, the table ranges from 14.5% to 48%, and in Argentina, from 5% to 35%. Reduce health and education deductions in the Individual Income Tax. Deductions with education, according to the economic team of the Bolsonaro government, favor the richest and the suggestion is to review the benefit. Already 88% of the IR benefit for health, assessed the former Ministry of Economy, in 2022, is concentrated in the portion (20%) corresponding to families with higher income, and 16.4% (1%) of higher income. The Minister of Finance, Fernando Haddad, has also indicated that the government may propose an update of property values ​​in the Income Tax. Currently, the registration of properties in the income tax return is done at their original value and is registered at that value over the years. When the sale is made, the rate of 15% to 22.5% is levied on capital gains. Tributes on heritage According to data from the Federal Revenue on the tax burden of 2021, only 4.87% of all taxes collected in Brazil that year were on heritage. In 2020, taxes on wealth accounted for 1.6% of Gross Domestic Product (GDP), below the OECD average, formed by more developed nations, of 1.8%. They were also below countries like Canada (4.2% of GDP), France (4% of GDP), United Kingdom (3.9% of GDP) and the United States (3% of GDP). In a seminar promoted by the Institute for Applied Economic Research (Ipea) last week, Alberto Barreix, consultant for the Inter-American Development Bank (IDB), assessed that the increase in debt and inequalities in Latin America could lead countries in the region to review their taxation models on wealth, which, according to him, records low collection. Inheritance tax in Brazil has different rates according to the state, which vary from 1% to up to 8% – the maximum percentage allowed by national legislation. Data from 2017 show that the values ​​are higher in other countries, with a limit of 40% in the USA, 50% in Germany and 60% in France. Among the taxes on property in Brazil, or property, are the IPVA (state) on automobiles; IPTU (municipal) on the value of real estate; ITCMD (state), also known as inheritance tax; ITBI (municipal) on the transfer of real estate; the ITR (state), on rural properties. “Wealth tax is important and needs to be considered. In Latin America, property tax is very poorly charged. There we have a deficit that we need to correct. But it is necessary to think about intelligent designs”, stated Alberto Barreix, consultant for the Inter-American Development Bank (IDB), last week. The rapporteur for the tax reform on consumption, deputy Aguinaldo Ribeiro (PP-BA), indicated that he should propose the taxation of luxury aircraft and vessels with the Tax on Motor Vehicles (IPVA). Under the current system, jets and speedboats do not pay the tax. A technical note from Unafisco Nacional, released in March this year, recommends instituting the so-called tax on large fortunes to tax the rich more. “Historically, wealth taxation has already been adopted in several countries, being maintained in some (such as Uruguay, Switzerland, Norway and France) and extinguished and later resumed in others (such as Spain, which reintroduced the tax in 2011)” , says the document.

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