The Tax Reform approved by the Brazilian Congress is a Constitutional Amendment (PEC-110) that requires a special majority of 3/5 – 308 deputies/49 senators – who must vote twice in both houses. The crux of the reform is the replacement of virtually all federal taxes with a “Value Added Tax”/VATtypical of advanced countries.
The main characteristics of this VAT are above all a notable expansion of the tax base, by over 30% compared to the current one; then he did it a non-cumulative character with the relationship to the 3 tax levels that exist today in Brazil (federal/state/local)which are estimated at more than 3,500 taxeswhich include 40 federal taxes, while the rest come from 25 states and 5,000 municipalities, many of which overlap in a cascade.
The essential thing is what the new system entails an extraordinary simplification, which represents a vertical drop in the costs incurred by businesses. That’s why reform implies a saving for the business world of R$ 28.1 billion per yearand at the same time promotes a growth of the Brazilian economy of 1.2% per year, with an improvement in the debt classification immediately carried out by Standard & Poor’s, which in the last week raised the sovereign rating of the Federation by one notch, the which implies that Brazil is now geared towards recovery “Investment grade”, which he had between 2008 and 2015.
The complexity of the Brazilian tax system It is a direct legacy of the Portuguese Empirewhose central feature was the weakness of the power of the Lisbon Court – “A tenuous power” -, and which sought to hide this situation through legalistic complexity and a very broad legal culture.
The Court of Lisbon moved to Rio in 1808 protected by the British fleet; and what is remarkable is that he managed to maintain his political unity after proclaiming his sovereignty in 1822; This was a fundamental difference with the Spanish Empire in America, which destroyed its unity, and also with the central power of the 4 Viceroyalties, which turned into complete anarchy and civil war.
Instead, the “Tenuous” Empire managed to maintain its unity, and thus a global role that included Africa (Angola and Mozambique), India (Goa) and Asia (Macau in China). All this took place protected by the alliance with Great Britain and her fleet which was the queen of all the seas; but at the same time it showed extreme complexity and overlap of its tax system.
To produce all its effects, the reform has a transitional period which essentially ends. in 2030, although in some respects it continues until 2078; and in that period Brasilia undertakes to transfer resources to states and municipalities, which would reach up to R$60,000 million in 2043; It is the price to pay to put an end to the permanent fiscal struggle between the Union and the States that began in the 19th century.
From 2030 Brazilian companies will have the sole obligation to issue an electronic tax document for each of their transactions.which constitutes an absolute novelty in the economic history of Brazil.
A peculiar characteristic of Brazilian society is the very high rate of use of the banking system (over 70% of the total); and at the same time Brazil is the 4th country in the world in terms of number of Internet users. What this massive issuance of electronic documents implies is this Collection occurs automatically and the same applies to real-time clearing of debts and credits.
The Brazilian Congress has just made a leap towards modernity of extraordinary magnitude; and the largest increase in competitiveness/productivity in the last 30 years. Above all, it is equivalent to a notable, practically immediate, improvement of Brazil’s international competitiveness.
It can be said that the new tax regime has greater importance for Brazil’s competitive presence in the world than the reduction of taxes, despite the fact that the tax burden amounts to 38% of GDP and is the highest among those of emerging countries, including China. , India and Mexico.
The 3 essential reforms implemented by Brazil in the last 10 years are, firstly, that of Social Security – approved on October 22, 2019 – which has been the main structural cause of Brazil’s chronic fiscal deficit. Secondly, we must add the 20% tax cap on the product approved by the March 2023 Amendment, and finally the recent Tax Reform (PEC-110).
This means that Brazil has qualitatively changed the accumulation process (savings/investments/system expansion); and now it grows on the basis of private investments in conditions of macroeconomic stability, which give new investments a level of productivity 30%/40% higher than that of an absolutely closed and depressive state economy like the one experienced in the 30 years following the crisis. ’80s.
Source: Clarin
