Efective rate 21,95%). ⢠Many rates: around 44;. ⢠Basic rate: 17% e ... based on tax costs, not on factors of produ
Taxes on Consumption of Goods and Services in Brazil 1) General Features of Taxation on Consumption 2) Specific Features of Taxes on Consumption 3) Tax Reform of Taxes on Consumption in Brazil Lecturer Raimundo Eloi de Carvalho General-Coordination of Tax Policy Secretaria da Receita Federal Brasilia – November 2006 General-Coordination of Tax Policy
1) General Features of Taxation on Consumption 1.1) Taxes on Consumption 1.2) Share in tax collection and in GDP 1.3) Cumulativity; non-cumulativity and conection elements. 1.4) 1960s: Elimination of da Cumulativity in Taxation on Consumption 1.5) VAT x ICMS 1.6) Evolution of Tax Collection on Consumption (Cumulativity x non-cumulativity ) General-Coordination of Tax Policy
1.1) Tributos Incidentes sobre o Consumo de Bens e Serviços no Brasil Competência Tributária
Tributos 1) IPI: Tax on Industrialized Goods 2) ICMS: Tax on the Circulation of Goods and Transportation and Communication Services
3) ISS: Tax on Services 4) COFINS: Contribution for the Financing of the Social Security 5) PIS: Social Integration Program 6) CIDE-Combustíveis: Economic Contribution on Fuel
Federal
Forma de Incidência
Base de Incidência
Non-cumulative
Industrialized Goods
States
Non-cumulative
Goods and (only) Transportation and Communication Services
Municipal
Cumulative
Services
Federal
Cumulative/Non-cumulative
Goods and Services
Federal
Cumulative/Non-cumulative
Goods and Services
Federal
Single stage
Gasoline and diesell
General-Coordination of Tax Policy
1.2)
Share in Tax Collection and in GDP- 2005
Tax Bases
Collection (R$ million)
Share % Tax collection
GDP
Consumption (*)
309,711
42.77%
15.98%
Income/Property (**)
179,339
24.77%
9.26%
Social Security
133,644
18.46%
6.90%
Others
101,419
14.01%
5.23%
724,113
100.00%
37.37%
Total
(*) IPI, ICMS, ISS, Pis/Pasep, Cofins e CIDE. (**) I. Renda, CSLL, IPTU, ITR, IPVA, ITCD e ITBI. Source: SRF/Copat - Carga Tributária General-Coordination of Tax Policy
Share in Tax Collection - 2005
Others 14,01%
Consumption 42,77%
Social Security 18,46%
Income/Property 24,77%
General-Coordination of Tax Policy
1.3) Cumulativity •
Incidence in each stage of the production process without deduction of the tax due in the previous stage Disadvantages 9 Afects competitivity (domestic and foreign); 9 Lack of neutrality and transparency; 9 Encourages forms of organization of production, in order to reduce tax burden (verticalization); 9 Harms international tax harmonization; 9 High burden on capital goods b) Advantages: 9 High potential collection with “low” tax rate 9 Simplicity for the tax administration and the taxpayer Ex.: Cofins. a)
General-Coordination of Tax Policy
1.3) Non-Cumulativity •
Incidence in each stage of the production process with deduction of the tax due in the previous stage (value-added tax)
•
Advantages: 9 Take into consideration principles of neutrality and transparency 9 Low burden on production 9 Facilitates border’s fiscal adjustment a) Disadvantages: 9 Complexity (more bureaucratic control); 9 Frauds (credit not due, counterfeit bills); 9 Need for high rates Ex.: Value-Added Taxes – IVA; ICMS e IPI.
General-Coordination of Tax Policy
1.3) Conection Elements • Taxation in Origin: 9 Rates
equal or similar; 9 Tax exports and exempts imports; 9 Fiscal wars (different brackets and tax benefits); 9 No need for border’s fiscal adjustment
• Taxation in Destination: 9 Tax
imports and exempts exports; 9 Tax evasion; 9 Need for border’s fiscal adjustment. General-Coordination of Tax Policy
1.4) 1960s: Beginning of the Process of Elimination of Cumulativity
CUMULATIVITY (I. C;
I. V. C.)
NON-CUMULATIVITY (IPI; General-Coordination of Tax Policy
ICM)
1.5) VAT x ICMS VAT (EUROPE) - CENTRAL GOVERNMENT
ICMS (BRASIL) - STATES
1) INSTITUTION
2) TAX BASIS
- BROAD (GOODS AND SERVICES)
- RESTRICT (GOODS AND ONLY TRANSPORTATIONS AND COMMUNICATION SERVICES) ) - MANY (INTRA AND INTER STATES) - TAX-INCLUSIVE BASIS
3) RATES
- FEW - TAX-EXCLUSIVE BASIS
4) CREDIT
- MONETARY: NO RESTRICTIONS TO CAPITAL AND CONSUMPTION GOODS
- FÍSIC: RESTRICTIONS TO CAPITAL AND CONSUMPTION GOODS
5) PRINCIPLE OF TAXATION
- DESTINATION
- MIXED (ORIGIN AND E DESTINATION)
General-Coordination of Tax Policy
1.6) EVOLUTION OF COLLECTION ON CONSUMPTION 16,00
14,00
12,00
8,00
Ampliação da base da Cofins
6,00 Reforma do Sistema Tributário
Instituição do Finsocial
4,00 Instituição do Pis 2,00
Não-cumulatividade da Cofins
NÃO CUMULATIVIDADE (*) (*) ICM/ICMS, IPI, COFINS General-Coordination of(2004) Taxe PIS/PASEP Policy (2003 e 2004). (**) FINSOCIAL/COFINS, PIS/PASEP e ISS.
CUMULATIVIDADE (**)
TOTAL
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
EM % DO PIB
10,00
2) Specific Features of Taxes on Consumption 2.1) ICMS 2.2) ISS 2.3) IPI, COFINS e PIS
General-Coordination of Tax Policy
2.1) ICMS •
Specific Features: a) b) c) d)
e) f)
State’s tax; 83% of States own tax collection; Non-cumulative; Exemption or non-levy, except as otherwise determined in the law, Shall not imply credit for compensation relative to the amount due in the subsequent transactions or rendering of services; Non incidence on exports; tax-inclusive basis (the ICMS is part of its own tax basis).
General-Coordination of Tax Policy
2.1) ICMS •
Tax Due: • When the good leaves the premises of the taxpayer, even for another premise of the same taxpayer; • On the entry of goods imported from abroad; • On communications services
General-Coordination of Tax Policy
2.1) ICMS •
Rates: • Internal: defined by the state • Interstate: defined by the Senate; • tax-inclusive basis: lack of transparency; (Ex.: Nominal rate18% =. Efective rate 21,95%)
• •
Many rates: around 44; Basic rate: 17% e 18%
General-Coordination of Tax Policy
2.1) ICMS •
Place of taxation: • Mixed principle (origin and destination): redistribute for consumer states
Ex. 1): São Paulo
Ceará
7% (origin)
11% (destination)*
Ex. 2): São Paulo
Rio Grande do Sul
12% (origin)
6% (destination)*
* Difference between internal (18%) and interstate rate General-Coordination of Tax Policy
2.1) ICMS •
Administration: • 27 different legislations • Fiscal wars: tax competition for new investments
General-Coordination of Tax Policy
2.1) ICMS •
Drawbacks of Fiscal Wars: • Affects Public Finances: loss of tax collection due to tax benefits • Distortion in Allocation of Resources : allocation based on tax costs, not on factors of production • Distortion in free marked: advantages for companies benefited by tax reduction.
General-Coordination of Tax Policy
2.1) ICMS •
Other features: • Use of Credits: postponment of use of capital goods credits and no concession of credits related to consumption goods; • Accumulation of credits in exports; • Single stage taxation: broad use
General-Coordination of Tax Policy
2.2) ISS •
General features: a) Municipal; b) Cumulative; c) Collection concentrated in few municipalities; (Ex.: 1% of municipalies = 73% of collection) d)
Highest and Lowest rates, defined by complementary law.
General-Coordination of Tax Policy
2.2) ISS •
Tax due: services included in a muncipal list.
General-Coordination of Tax Policy
2.2) ISS •
Rates: • Lowest: 2% • Highest: 5%
General-Coordination of Tax Policy
2.2) ISS •
Concentration of Collection: Collection
% municipalities
Municipalities R$ Million
%
Top 50
6.704
72,66
0,90
Top 100
7.431
80,54
1,80
Top 200
8.074
87,50
3,60
Demais
1.153
12,50
96,40
9.227
100,00
100,00
Total
Fonte: Secretaria do Tesouro Nacional Obs.: Total de Municípios: 5.558.
General-Coordination of Tax Policy
3) Tax Reform on Taxes on Consumption in Brazil 3.1) Aims 3.2) Brief history 3.3) Present stage 3.4) Perspectives
General-Coordination of Tax Policy
Main propositions of changes in Taxation on Consumption, aiming at implementing a VAT in Brazil
• 1988: Tax Reform and Fiscal descentralization Committee • 1992: Executive Committee of Fiscal Reform • (CERF); • 1995: PEC nº 175/95; • 2003: PEC nº 41/03. General-Coordination of Tax Policy
Stages, established by Congress, of Reform of Taxes on Consumption, aiming at implementing a VAT • First (EC nº 42/03): 9 Gradual reduction of IPI on capital goods 9 Exemption of exports, keeping the credits 9 Partial non-cumulativity of contributions Second (2005): 9 At most five rates of ICMS, uniform in all the national territory 9 National legislation. • Third (2007): 9 Implementation of a VAT, with the fusion of ICMS, IPI, ISS, Cofins e Pis/Pasep.
General-Coordination of Tax Policy
Difficulties for Tax Reform
• • • •
Destination and allocation of revenues Tax competence Place of taxation Redistribution of government responsabilities.
General-Coordination of Tax Policy
General-Coordination of Tax Policy
