FERNANDO REZENDE

EBAPE/FGV

We don’t have a system, but a chaotic tax regimen.

More than fifty years ago a group of Brazilian experts, assisted by a foreign team led by Carl Shoup, designed here a modern tax system that was implemented in 1965.

This system was torn out in 1998 since it was associated with the military regimen.

The dual tax regimen adopted in 1988 helped to sustain the fiscal adjustment ten years late, but led to budgetary rigidity, disequilibria and conflicts in the federation and further distortions in the tax regimen

Harmonization of the tax basis and a new model for assigning constitutional powers to tax in the federation. ◦ Income, manufacturing and excises on fuel and public

utilities taxed at the federal level. ◦ A modern value added tax adopted at the state level ◦ Services taxed at the local level

A modern regimen for reducing vertical and horizontal fiscal disparities in the federation.

Taxes on fuels, telecommunications and electricity earmarked to infrastructure projects – proceeds shared by federal, states and local governments

More support to a regional development policy

More responsibilities to the federal government and more resources to state and local governments. ◦ Competence to tax at the federal level split in two parts-

general purpose taxes and earmarked social contributions to pensions, health and social assistance.

◦ At the same time the room for collecting taxes at the state and local levels was enlarged and the portion of the general purpose taxes shared with state and local governments grew.

The scenario for the accumulation of distortions was set up.

Multiple incidences on the same tax basis was restored.

Proliferation of regimens used to collect taxes raised compliance costs and demands for simplification – limits to adhere to the “simples nacional” reached unusual highs.

60% of all litigations refers to taxes and the extension of the constitutional chapter on taxation means that a high proportion goes to the supreme court for a final decision.

Tax burden on business hinders competition on the international and domestic markets.

Crisis of the late nineties demanded urgent measures to restore fiscal equilibrium.

The federal government had to rely on the contributions earmarked to pensions, health and social assistance to achieve the primary surplus in need.

An amendment to the constitution allowed for the deviation of one fifth of the increase in revenues to meet the fiscal target and keep the public debt at bay.

Expenditures on pensions , health and social assistance and revenues from earmarked federal taxes (1995 =100)

To an even higher budgetary rigidity, since four fifths of the increase in revenues opened up the room for increasing spending on the beneficiaries of that specie of federal receipts.

To a recentralization of the tax burden and a new wave of conflicts, inequalities and fiscal crisis at the subnational level.

To a more regressive distribution of the tax burden at the national level.

EVOLUÇÃO DA DIVISÃO FEDERATIVA DA RECEITA TRIBUTÁRIA - 1960/2011

(conceito contas nacionais)

Conceito Central Estadual Local Total Central Estadual Local Total

ARRECADAÇÃO DIRETA

1960 11,14 5,45 0,82 17,41 64,0 31,3 4,7 100,0

1965 12,08 5,85 1,06 18,99 63,6 30,8 5,6 100,0

1983 20,66 5,56 0,75 26,97 76,6 20,6 2,8 100,0

1988 16,08 5,74 0,61 22,43 71,7 25,6 2,7 100,0

1991 16,01 7,86 1,36 25,24 63,4 31,2 5,4 100,0

2000 20,77 8,61 1,77 31,15 66,7 27,6 5,7 100,0

2011 24,60 9,18 2,06 35,83 68,6 25,6 5,7 100,0

RECEITA DISPONÍVEL

1960 10,37 5,94 1,11 17,41 59,5 34,1 6,4 100,0

1965 10,40 6,67 1,92 18,99 54,8 35,1 10,1 100,0

1983 18,82 5,75 2,40 26,97 69,8 21,3 8,9 100,0

1988 13,48 5,97 2,98 22,43 60,1 26,6 13,3 100,0

1991 13,81 7,47 3,96 25,24 54,7 29,6 15,7 100,0

2000 17,38 8,19 5,58 31,15 55,8 26,3 17,9 100,0

2011 20,46 8,84 6,52 35,82 57,1 24,7 18,2 100,0

Elaboração própria. Fontes primárias: STN, SRF, IBGE, Ministério da Previdência, CEF, Confaz e Balanços Municipais.

Anos selecionados de mudanças institucionais mais relevantes ou de variações nas participações relativas da receita disponível.

Metodologia das contas nacionais inclui impostos, taxas e contribuições, inclusive CPMF, FGTS e royalties, bem assim dívida ativa.

Receita Dispon'ivel = arrecadação própria mais e/ou menos repartição constitucional de receitas tributárias e outros repasses compulsórios.

Carga - % do PIB Composição - % do Total

EVOLUÇÃO DA DIVISÃO FEDERATIVA DA RECEITA TRIBUTÁRIA - 1960/2011

(conceito contas nacionais)

Conceito Central Estadual Local Total Central Estadual Local Total

ARRECADAÇÃO DIRETA

1960 11,14 5,45 0,82 17,41 64,0 31,3 4,7 100,0

1965 12,08 5,85 1,06 18,99 63,6 30,8 5,6 100,0

1983 20,66 5,56 0,75 26,97 76,6 20,6 2,8 100,0

1988 16,08 5,74 0,61 22,43 71,7 25,6 2,7 100,0

1991 16,01 7,86 1,36 25,24 63,4 31,2 5,4 100,0

2000 20,77 8,61 1,77 31,15 66,7 27,6 5,7 100,0

2011 24,60 9,18 2,06 35,83 68,6 25,6 5,7 100,0

RECEITA DISPONÍVEL

1960 10,37 5,94 1,11 17,41 59,5 34,1 6,4 100,0

1965 10,40 6,67 1,92 18,99 54,8 35,1 10,1 100,0

1983 18,82 5,75 2,40 26,97 69,8 21,3 8,9 100,0

1988 13,48 5,97 2,98 22,43 60,1 26,6 13,3 100,0

1991 13,81 7,47 3,96 25,24 54,7 29,6 15,7 100,0

2000 17,38 8,19 5,58 31,15 55,8 26,3 17,9 100,0

2011 20,46 8,84 6,52 35,82 57,1 24,7 18,2 100,0

Elaboração própria. Fontes primárias: STN, SRF, IBGE, Ministério da Previdência, CEF, Confaz e Balanços Municipais.

Anos selecionados de mudanças institucionais mais relevantes ou de variações nas participações relativas da receita disponível.

Metodologia das contas nacionais inclui impostos, taxas e contribuições, inclusive CPMF, FGTS e royalties, bem assim dívida ativa.

Receita Dispon'ivel = arrecadação própria mais e/ou menos repartição constitucional de receitas tributárias e outros repasses compulsórios.

Carga - % do PIB Composição - % do Total

Addressing the structural imbalances on the fiscal accounts now demand expenditures cuts.

Which faces barriers erected by the unique situation that most of what has to be done depends on constitutional changes.

Since budgetary rigidities are tied to the tax regimen, putting together proposals that join the budgetary and tax reforms in a common agenda for dealing with both aspects of the problem seems to be sensible.

To approach a tax reform from a perspective that includes the challenges the digital economy raise for the tax system of the twentieth first century.

To reduce the extent of the constitutional chapter on taxation to make it easier further adjustments on the tax rules to technological innovations and the global scenario

To allow for greater flexibility in the allocation of the budget to avoid disequilibrium in national priorities and sustain fiscal responsibility in the medium and long run.