The legislation causes taxation to focus more on production and consumption and less on profits and income
It is commonly believed that Brazil has one of the highest fiscal pressures in the world. According to data from Global Revenue Statistics Database, from the Organization for Economic Co-operation and Development (OECD), for 120 countries, in 2021, at 33.5% of GDP, our burden was the 25th highest. Yes, it is high, but lower than the average for OECD members (34.1%), practically all of Western Europe and even some comparable emerging countries.
What is striking is that the ranking is organized by type of tax. Taxes on the production and distribution of goods and services (indirect taxes) correspond to 15% of GDP. In this criterion we occupy the 12th position. With comparable countries we are only below Bulgaria, Hungary, Argentina and Greece. The other samples are very small economies.
Taxes on profits and income represent 8% of GDP, which puts us in fiftieth place. In other words, despite the high rates of income tax (IR) for legal entities paying on real profits and the incidence of IR at source on relatively low wages, the quagmire of our confusing tax legislation, which includes exemptions , deductions, incentives, Exclusions from the calculation base, among other relief valves, mean that taxation focuses heavily on production and consumption and little on profits and income.
This damages industry, reduces productivity and penalizes the poorest. Completing the tax burden are social security contributions (8% of GDP) and other taxes and duties (2.5% of GDP).
Is it desirable and possible to reduce the tax burden? Obviously it is desirable, but it is very difficult in the short and medium term. Brazil has opted for social welfare policies (in our style, of course) that impose enormous rigidity on so-called mandatory spending. We have a universal healthcare system (SUS), free education from elementary to high school, significant social income transfer programs (the new Bolsa Família alone is expected to reach 1.7% of GDP in 2024) and a social security system which will soon require further renovation work to be financed.
Furthermore, the cost of subsidies, especially for the rural sector and other politically powerful segments, is also enormous. Let me be clear that I am not going into the merits of any of these programs, but we cannot turn a blind eye to the need to finance them, since the political obstacles to their reduction seem insurmountable.
PEC 45, despite the turtles, represents a big step forward in improving our tax system. But his path to the Senate will not be easy and there is a risk that the situation will worsen. Likewise, the government’s fiscal package, currently before the House, has faced enormous resistance from affected sectors and appears unlikely to be passed in its entirety./ ECONOMIST, PRESIDENT DIRECTOR OF MCM CONSULTORES, HAS BEEN CONSULTANT TO THE WORLD BANK, UNDERSECRETARY OF THE NATIONAL TREASURY AND HEAD OF THE ECONOMIC CONSULTANCY OF THE MINISTRY OF FINANCE
Source: Terra
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