The tax burden in Brazil is much more unequal than actually high, if compared to other countries
By Anna Beatriz Anjos and Glauco Faria*
During the demonstrations against the government of Dilma Rousseff held in March and April this year, several messages on banners and posters drew attention. Some called for military intervention; other, the end of “indoctrination” by Karl Marx or even Paulo Freire. Some of the more inconsistent, however, referred to taxes in Brazil. Some said that “evasion is not corruption”, others wanted an “end of the taxes”.
In Brazil, the prevailing idea is that the tax burden is too high and that governments do not give enough return in terms of services. Professor at Economics Institute of the State University of Campinas (Unicamp) Marcio Pochmann disputes this: “Paying taxes is an act of citizenship – there is no full citizenship without paying taxes. Unfortunately, we are not a country of full citizenship, our country is underdeveloped and our tax system is derived from this condition.” The statement was made at the seminar “Which tax reform does Brazil need?” held by the Bank Workers Union of São Paulo.
On the occasion, the tax auditor Marcelo Lettieri Siqueira made reference to another economist, the South Korean Professor Ha-Joon Chang, author of the book Kicking Away the Ladder, to remember that the existing cries against taxes, which is part of neoliberal ideology contradicts the policies and institutions adopted by rich countries. The recommendations today regarding developed nations give to developing countries are made as if they reinvented their stories to “kick the ladder” and do not allow others to go up to their level. “Countries with high per capita GDP have high tax burden. No country has developed reducing the tax burden,” Lettieri said.
On the alleged State inefficiency in providing services that correspond to the amount of proceeds of taxes, the economist João Sicsú asked: “And what is the way out? Reduce the tax burden and derail what exists today?” “No! We should rather improve the quality of spending and prevent misappropriation of resources, we must combat any act of corruption, no matter how small. But we have to understand that with this tax burden must overcome difficulties that the advanced countries dealt with over decades. The British public health system for instance is nearly 70 years old,” he said.
TAX BURDEN
Given that taxes are necessary for the state to function and operate its most basic functions, part up to the next discussion: in Brazil, do we pay high taxes? “The Brazilian tax burden is very low. You may wonder, because they say it is too high, but it is very low on equity, wealth and income. And it’s very high on consumption, that’s the problem,” said Dão Real Pereira dos Santos, Director of Institutional Relations of the Tax Justice Institute.
Concrete data give basis to the argument. According to the Federal Revenue, in 2012 the tax burden in Brazil – the amount of all taxes paid by citizens and businesses in relation to Gross Domestic Product (GDP) – was 35.86%. We are close or behind countries considered developed, such as the UK (35.2%), Germany (37.6%), Sweden (44.3%), France (45.3%) and Denmark (48%). In 2013, the last measurement available, the ratio reached the level of 35.95%, but there are no updated figures of other nations to make comparison.
In the description of the Treasury, in 2013 taxes on goods and services – the so-called “indirect” taxes, embedded in the final price and passed on to the consumer – accounted for 51.2% of the total value. Income taxes amounted to only 18.1%; on payroll, 24.98%; and on property, only 3.93%.
On indirect taxation, the lower the consumer’s income, the more penalized it comes out because larger portion of its earnings will be consumed, as amount to be paid is the same for everyone. According to a study by the Applied Economic Research Institute (Ipea, in Portuguese), the poorest 10% of the population pay 32% of their income in taxes, while the richest 10% spend just 21%.
Auditor Clair Hickmann, who directed the Financial Institutions Special Police (Deinf, in Portuguese) of the Federal Revenue, explained why this should not occur. “There are some basic principles of fair taxation that are in the Constitution, but are not observed by infra-constitutional legislation,” she said. “One of the principles recognized is the ability to pay – that is, every citizen has to contribute according to their purchasing and economic power – but it does not happen in Brazil. The other principle that I find very important is the progressiveness, fundamental to distribution of income”, she alleged. “Progressiveness means: the higher the income, the higher the tax rate.”
Although it is calculated based on progressive scale, the income tax for individuals not fully complies with this principle. “We need to discuss a new table of Income Tax, one which contains actually more rates. We cannot have here the same rate for those who earn 5,000 reais and those who earn 50,000. We have to think a proposal that does justice to the taxation on income,” noted economist João Sicsú, professor at the Federal University of Rio de Janeiro (UFRJ).
TAXES ON WEALTH
Just to modify this unequal picture is emerging proposals for taxing large fortunes. And it is noteworthy that a higher tax on goods and properties is not exactly an agenda of the “left”. “I know that many complain about taxes in Brazil, but they are actually low compared to the US, UK or Germany – and these are not very leftist countries. [Angela] Merkel and [David] Cameron are not leftist governments. No one within the other parties in these countries calls for taxes to lower. Why is that? Are they ‘crazy leftists’? No,” said the economist Thomas Piketty, author of The Capital in the XXI century, to Revista Forum magazine.
“In many extremely rich countries the tax on wealth is higher than the tax on consumption, and they are capitalist countries that are more competitive than Brazil. I believe there are many bad excuses for the elite not accepting this, but from the economic and practical point of view, I do not think they’re right,” he added.
In this context, a demand is that the rate of inheritance tax, collected by the states and which is currently 8% maximum (4% in Rio de Janeiro and São Paulo), is high and charged progressively for large amounts. Today, those who receive a small inheritance paid the same as those who receive a large fortune. In the US, there are states that charge 18%, such as Nebraska; in England, this rate can reach 40% and in France, 60%.
“Warren Buffet and Bill Gates are great inheritance tax advocates not because they are Social Democrats. Warren says it’s an important tax because there is no guarantee that the ideal athlete to compete in the Olympics is the grandson of those who played 40 years ago. That is, for him, the money has to follow a stream. Among liberals there is a very clear justification, the inheritance tax is to make capitalism continue working,” explained economist of Ipea José Aparecido Carlos Ribeiro.
The Brazilian Constitution provides for the establishment of taxes on large fortunes through a complementary law. Currently, they precede through the Congress through several proposals. One of them, the supplementary bill 277, is authored by former presidential candidate by PSOL (Socialism and Freedom Party), Luciana Genro. Even former President Fernando Henrique Cardoso (Brazilians Social Democracy Party), as a senator, in 1989, created the project to regulate the tax. Since 2000 the proposal is to be voted.
Analyzes and data available show how essential it is that we discuss a tax reform to reduce inequality to conduct tax justice in Brazil. However, as has happened to political reform simulacrum voted in the Chamber of Deputies, this is another set of measures that can be disfigured and become even worse than it already is. The president of the Chamber of Deputies, Eduardo Cunha has announced that after the vote on proposed amendments to the federal agreement amending the sharing of resources between the federal, states and municipalities shall direct the discussion on tax reform.
*This article was originally published in Revista Forum magazine (www.revistaforum.com.br), and translated by Brasil Observer
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