Transcript Document

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



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

•
•
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% 76%
STATES = +1,84%  24%
MUNICIPALITIES = +0,02%
10
1999
11
2000
2001 13
12
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
 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
 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