The war of numbers in tax reform – 04/30/2023 – Market

The resumption of discussions on tax reform also revived a war of numbers over the impact of changes in the taxation of goods and services for each economic sector.

Virtually all representatives of the services and agriculture sectors have argued that they will pay more tax. Therefore, they ask for different treatment.

The Ministry of Finance should soon finalize its own calculations, which will be presented to the Chamber’s working group that prepares the proposal expected to be presented on May 16.

Gustavo Madi, director of LCA Consultores responsible for studies in the area of ​​taxation, coordinated several works over the last four years, when the reform was once again debated in Congress.

Despite having been carried out at different times and with parameters that were being updated, he says that the main conclusions are always the same.

Industries with longer production chains, in general, accumulate a relatively large tax residue due to the cascading tax. As a result, the current load tends to be higher. With the reform, it would decrease.

Export sectors, even the most basic ones, such as agriculture and extractive industries, also have a relevant tax residue. They will be favored to the extent that the reform eliminates this accumulation of taxes.

Companies that provide services to businesses should be taxed more, but this tax will become a credit to the buyer. As a result, the cost of the input or services for the purchasing company will be lower.

The sectors of services for families, on the other hand, should see an increase in the burden, especially in the areas of health and education, segments that will have different treatment, as has already been admitted by parliamentarians of the working group and by the government.

The calculations of the LCA are mainly based on data from the National Accounts of the IBGE (GDP numbers) and the Federal Revenue of collection by Code of Economic Activity.

In addition to the tax paid directly to the government by the company, it is also necessary to calculate all those included in the prices of goods and services purchased, based on the average cost structure for the sector, load of main inputs and identification of those that currently generate credit or not.

“The current system is so complex, so full of particularities, that the level of uncertainty [nos cálculos] is relatively large, but, in large numbers, the sectors that will have an increase or reduction in load are the same”, says the director of LCA.

Manicure

Another reference study in the area is co-authored by lawyer, economist and World Bank consultant Eduardo Fleury. Based on data from the POF (IBGE’s Household Budget Survey), the work seeks to remove the taxes target of the reform from the entire production chain and apply the new tax with a single rate of around 25%.

It is also necessary to consider the weight of each input, how much is purchased from Simples companies —which will not be affected by the reform.

Fleury states that the companies affected by the reform with an increase in the tax burden represent a small universe. He says that services represent 73% of GDP, but what can be achieved is no more than 13.7% of GDP. And even within this universe there are Simples companies and micro-entrepreneurs, who are not affected, in addition to companies in sectors that should have differentiated taxation, such as health and education.

CNI estimates that 9.1% of companies in the sector would have a negative impact, but says that 89.4% are in Simples. With that, the impact would be restricted to 1% of the companies.

“You have to be careful with the numbers. When you remove health, education, remove companies from Simples, the field of companies affected is much smaller. Manicure, for example, is MEI or Simples, it will not be affected”, says Fleury.

New rate is also doubtful

The calculation of the rate of the new tax is another factor of uncertainty. It should be enough to keep the fundraiser going. That is, the average percentage that is currently paid. Since 2019, the figure of 25% has been adopted, with calculations that vary around this result.

Reference works by researchers from UFMG (Federal University of Minas Gerais) and Ipea (Institute of Applied Economic Research) showed values ​​of 24.2% and 26.9%, respectively. The World Bank and the LCA also work with amounts within these limits.

The CNS (National Confederation of Services), on the other hand, presented in Congress the figure of 16.5% calculated by its economic advisory. The entity argues that it would be possible, with a rate of 21.5%, to take from the consumption tax an extra collection that compensates for a payroll exemption.

“Whoever calculates 25% is taking a GDP calculation, which is not the best basis. We arrive at 16.5% starting not from GDP, but from how much companies earn. The other part of this difference of almost nine percentage points is the question of tax evasion. We calculated an ideal rate in which there is no tax evader”, says Fernando Garcia de Freitas, CNS economic adviser.

Freitas also questions the studies that show gains in economic growth, productivity and jobs with the reform. He claims they are based on benefits that would come in periods of up to 20 years. The CNS projects the closure of 1 million jobs and an immediate drop of 0.6% in GDP after the change in the tax rule.

I understand what they’re saying, but I think it’s a weak argument for making a decision today. If the match is bad for many people, this will generate friction in the economy, it will make it difficult to grow. I find this study particularly optimistic.

“I trust this modeling for other matters, such as when talking about results if we invest in education or sanitation. In education, the gain will not appear before 20 years. In the tax change, the impact is tomorrow.”