CIDE 1%. 42,8%. GOOD AND SERVICES. MUNICIPAL. ESTADUAL. FEDERAL .... taxpayer services online (e.g., dissemination of in
CONSUMPTION TAXES IN BRAZIL Objectives, Constraints, Challenges
Alexandrine Brami Celentano Sciences Po Paris, GVCenn FGV-SP
“Tributação sobre Consumo no Brasil” GDT, Brasília 20-23 de novembro de 2007
8,5 milhões de km2
BRASIL
15.700 Km de fronteiras terrestres 7.300 Km de fronteiras marítimas Population: 182,5 M
Source: IBGE
PIB 2005: 796 bi $ PIB per capita: 4323 $ Growth of GDP: 3,2% Tax collection: 298 bi $ Tax burden: 37,37%
Source: IBGE and SRF
ARCHITECTURE OF BRAZILIAN FEDERALISM UNION federal
26 STATES + DF states
5572 MUNICIPALITIES local Subnational
CONSUMPTION TAXES (% Tax Base) COMPETENCE FEDERAL
ESTADUAL
MUNICIPAL
ICMS 21,4%
ISS 1,8%
25%
5%
GOOD AND SERVICES
42,8%
IPI 3,6%
CIDE 1%
COFINS 12% PIS 2,56% INCOME AND PROFITS
21,7 PROPERTY 2,7 SALARIES 25,16 COMERCIO EXTERIOR 1,25 OTHERS 2,15
TOTAL
70%
MAIN DESIRABLE OBJECTIVES OF TAX POLICY IN BRAZIL
MAIN DESIRABLE OBJECTIVES OF TAX POLICY IN BRAZIL 1.
2.
3.
Ensuring sustainable fiscal position, through low or declining public deficits and debt ratio Promoting revenue mobilization, to finance efficient spending programs, especially in the social area and in infrastructures Removing, to the extent feasible, distortive features of the tax system, to promote economic efficiency and increase growth potential
MAIN CONSTRAINTS FACING POLICY MAKERS IN THE PURSUIT OF THESE OBJETIVES
MAIN CONSTRAINTS FACING POLICY MAKERS IN THE PURSUIT OF THESES OBJECTIVES
1. 2. 3. 4. 5. 6.
Structure of the economy Trade liberalization Increased financial openness Large income disparities Fiscal decentralization Administrative weaknesses
HOW IS BRAZIL COPING WITH THE PROBLEMS OUTLINED ABOVE?
Pattern of Change in Brazilian Tax System Î
Î
Î
From 1988 to now, only moderate reform occurred, limited to the boundaries of existing institution Instead of forging a new pact around tax, all actors maneuvered within the boundaries of previous tax institutions to face challenges as they emerged Pattern of Tax Policy in Brazil
Increasing Tax Burden Î
• •
As a surprise, minor adjustments both within inherited institutions and at their margins did allow significant policy changes Major expansion of tax revenues that brought Brazil to developed-country levels of tax, and Introduced a number of extremely modern tax practices (notable improvements in the administration and rationality of certain taxes).
In the context of fiscal adjustment and market liberalization, such changes were a major priority and represented important achievements. BUT: Expanded revenues were possible only through tightening the screws on those handles that government could easily access, and these handles were not always the most appropriate to a modern, growing economy. The result was that the increase in the tax burden occurred in a way that was inefficient and inequitable.
EVOLUTION OF TAX BURDEN TOTAL 1998-2005 = +7,63%
40
37,37%
35 29,74%
% PIB
30
TOTAL
25
UNIÃO
20
ESTADOS
15
MUNICÍPIOS
10 5 0 1 1990 1990
2 1991
3 1992
4 1993
5 1994
6 1995
7 1996
8 1997
9 1998
Source: SRF
TOTAL = +7,63% UNION = +5,77% Î76% STATES = +1,84% Î 24% MUNICIPALITIES = +0,02%
10 1999
11 2000
12 2001 13 2002 14 2003 15 2004 16 2005
TAX BURDEN: A COMPARISM (2003)
BRAZIL
LATIN AMERICA
South Europe
Occidental Europe and Canada
The increase in the tax burden came at the cost of economic inefficiency It is practically a consensus that the Brazilian domestic taxation hinders both the insertion of the country in the global economy and economic growth: -
It imposes a competitive disadvantage to the Brazilian production sector, in both the international and the domestic markets; It distorts the allocation of resources in detriment of economic efficiency; It increases the cost of investment by taxing capital goods; It is excessively complex and inappropriate for international harmonization; It facilitates or even stimulates evasion, causing inequity and unequal competition; And it is suitable for predatory fiscal competition among states, the so-called fiscal war, that brings about conflicts in the federation Tax and Judicial Insecurity for private sector
MAJOR CHALLENGES FACING POLICY MAKERS
MAJOR CHALLENGES FACING POLICY MAKERS
1. 2. 3. 4.
Understanding Brazilian Version of “VAT” Simplifying Tax Legislation and Regulations Monitoring and Reducing Tax Incentives Strengthening Tax Administrations
Understanding Brazilian Version of VAT 1. Brazilian version of VAT 2. Introduction and expansion of cascading taxes on turnover 3. Fragmented and regressive system of Consumption Tax
Î Consequences: Administration and compliance costs became excessive; Distortions imposed on the allocation of resources and on competition grew immoderately.
Simplifying Tax Legislation and Regulations Associated with regional tax harmonization (Mercosur), tax simplification can: -
Reduce tax cost, for both public and private sectors Reduce national and regional tax competition for FDI Strengthen Tax compliance
Consensus about: -
The very necessity to converge to a simpler model, with fewer taxes and one principle of taxation, thereby making tax system leaner and more enforceable. Reform proposal must target both sales taxes and contributions
Lack of consensus about: -
What is desirable scope for further simplification and standardization? How much time is this process likely to take? Harmonization or Recentralization? Is devolution of power to tax desirable (economically)? Possible (politically)?
Conflicts of interpretation: -
The spirit of the ICMS reform The very effects of the sales tax reform
Monitoring and Reducing Tax Incentives 1. Too many tax incentives -
Limited economic benefits of tax incentives, as well as of their shortcomings Relations among and between federal units reveal shift in the federal pact
2. Monitoring and reducing tax exemptions and incentives -
Recent program of fiscal consolidation has included streamling of tax exemptions. Executive power has also introduced annual tax expenditure budgets, to monitor the cost of tax incentives in term of foregone revenue.
But: -
Further judicial and institutional reforms are also needed, to allow for quicker and more effective resolution of tax disputes and to reduce uncertainty Need for law enforcement
Question: What should be the key reform priorities in this area? How can they be advanced?
3. Good use of tax exemptions
Strengthening Tax Administrations 1. Improving Local Taxation
The objective should be to make municipalities more self-reliant by collecting their own taxes. How? -
Mechanisms habe been devised to link tax-sharing formulas to fiscal effort by local governments, but they are relatively demanding in terms of informational requirements Intermunicipal and inter-governmental cooperation required
2. Improving taxpayer services
Brazil has embraced innovations in tax administration. Many tax administrations already provide taxpayer services online (e.g., dissemination of information, tax filling). Question: What is the scope for further modernization and automatization?
3. Strengthening collection enforcement, including through judicial and legal reforms Î Efforts to strengthen and modernize tax administration have to be motivated not only by
revenue-raising objectives, but also by a growing recognition that improved tax enforcement increases equity and, by leveling the playing field for business, promote efficiency in resource allocation.
KEY PROBLEM
ICMS: An impasse issue? To renegotiate this tax would require a pact among various states. 1. A key problem is the issue of uncertainty in the context of fiscal crisis.
As Fernandez and Rodrik (1991) show, uncertainty about future benefits can create a status quo bias. It is not that the states or some group of states are too powerful, it is that neither the states nor the federal government want to run the risk of losing money.
2. An additional problem with a new pact around tax can be found in Congress. 3. Additional civil society actors find their way into the negotiations and further complicate a new pact.
Conclusion: Constructing Basis for Tax Reform
Comparing the dynamic process of change in Tax Reform and the Fiscal Responsibility Law 1. Fiscal Responsibility Law represented the culmination of the long process of forming a new federal arrangement. 2. Tax reform process: occurred slowly and gradually, but it did not rest on a new pact, nor did it lead to entirely new rules of the game.
Question: What can make tax reform successful in terms of increasing capacity and accountability?
Obrigada pela atenção
