RIO DE JANEIRO, Jun 17 (IPS) - The Brazilian government of Dilma Rousseff is attempting to push through long-delayed reforms of the tax system, which is one of the most onerous and unequal in the world, with a tax burden as heavy as that of many rich countries, but accompanied by deficient public services.
Rousseff announced that the tax reform bill, one of her government's top priorities, will be introduced to Congress in several parts, leaving aside the idea of a broad, far-reaching reform, which analysts say was one of the reasons it failed on two previous attempts by her predecessor Luiz Inácio Lula da Silva (2003-2011), who also belonged to the left-wing Workers Party.
However, the initiative is already facing severe criticism, even among the president's allies in Congress.
Finance Minister Guido Mantega said the idea is to start out by simplifying the Merchandise and Services Circulation Tax (ICMS), considered the worst "culprit", and cutting taxes on wage and salary income.
Mantega acknowledged that Brazil's tax burden is heavy, and said that in order to compete with other emerging countries like China and India, it will be necessary to resolve these two aspects this year.
Although there are major disagreements between the government, the opposition, trade unions and business on the question of the tax reforms, there is broad agreement that the current system is unfair and overly complex and that it is curbing growth and undermining competitiveness.
According to the Brazilian Institute of Tax Planning (BIPT), total tax revenue was equivalent to 35 percent of GDP in 2010, representing a .72 percent increase from the year before. In 2000, it was equivalent to 30 percent of GDP, the BIPT reported.
Besides the tax on wages and salaries, some 70 direct and indirect taxes are levied in Brazil, such as a consumption tax on products and services, property taxes, motor vehicle taxes, and garbage collection and street light taxes.
"Brazil has the 14th highest tax burden in the world," the president of the BIPT, Joao Eloi Olenike, told IPS in an interview. "But countries that have similar or heavier burdens have an excellent quality of life and channel the funds into services that improve the well-being of the population, which sadly is not the case here." He cited the United States, where tax revenue represents 29 percent of GDP.
The BIPT advocates tax reforms "that would shift away from (regressive) taxes on consumption towards (progressive) taxes on income and wealth, and that would reduce the excessive number of taxes, with a view to simplifying the system."
A BIPT study found that Brazil's 191 million people paid an average of 6,722 reals (4,254 dollars) a year in 2010, nearly 1,000 reals (632 dollars) more than the year before.
The report points out that Brazilians have to work an average of 149 days a year just to pay their taxes, behind Sweden's 185 days but on the same level as France and ahead of the United States, where people pay their taxes with 102 days of work.
Breaking down the tax burden by income level, the BIPT notes that the poorest segments of the population must work 142 days a year to pay their taxes, and the wealthy 152 days, while the middle-class is hit the hardest, having to work 158 days to meet their tax payments, which are equivalent to 43 percent of their gross income.
"Our tax system is complex, confusing and unfair, with excessive obligations and a burden of multiple taxation with a cascading effect," said Olenike.
The cascading effect refers to an item being taxed more than once as it makes its way from production to final retail sale.
The result is an increase in consumption taxes, "which hurt citizens with the weakest purchasing power," he stressed.
This kind of tax burden, because it is not gradual according to the consumer's ability to pay, "ends up hurting the poor, who pay more proportionately," the head of the BIPT added.
It also makes local and foreign companies "less and less interested in making productive investments in our country," which leads to "unemployment and economic stagnation."
But Brazil's main trade union federation, the Unified Workers' Central (CUT), complains that the tax reforms proposed by the government are more in line with a neoliberal policy agenda than with a social agenda. In other words, they say that the poor will continue to suffer more under the proposed new tax regime than the rich.
According to studies by the powerful trade union, only half of the tax revenue in Brazil comes from taxes on income, capital gains and wealth like land or real estate. The other half consists of taxes on consumption, which disproportionately affect the poor.
CUT and a number of lawmakers of the governing Workers Party are calling for a progressive income tax, so that whoever earns more pays more.
In a recent meeting with the finance minister, the trade union's leaders also pressed for an increase in direct taxes on income and wealth, and in the tax on large personal fortunes and inheritance.
The CUT also argues that a reduction in taxes on productive investments is necessary, while calling for a tax on financial speculation.
"We see these as the chief aspects that could contribute to improving the distribution of income in the country," said CUT secretary general Quintino Severo. "By reducing the burden on the working class, we would boost domestic consumption capacity and help generate jobs and income.
"We can't support a tax structure where those who earn less pay more, or one that punishes those who want to generate jobs and income," he said.
The National Confederation of Industry (CNI), meanwhile, argues that a reduction in taxes on investment and exports cannot be put off any longer.
In an interview with IPS, CNI chief economist Flavio Castelo Branco said the current tax system is "outdated" and "designed for economic circumstances of the past, when we were not integrated in the world and we needed to combat the fiscal crisis and high inflation."
Castelo Branco said it is unacceptable for capital goods, for example, to carry a cost in taxes, "when in other countries, like Chile, that cost is zero."
The cascading effect drives up the cost of the final product by imposing taxes on energy and telecommunications, for example.
"An investment project in Brazil entails a high tax cost, which drives investors to other countries," he said.
"Taxes on investment and exports, and the complexity of additional costs, increase companies' costs and prices, and reduce competitiveness," he said.
"It's the final consumer who ends up paying," which "obviously has an effect on the distribution of income," he said.
The fiscal burden on each citizen becomes very clear on tax freedom day, when shopping centres offer products and services without taxes, and the price of gasoline, for example, goes down 53 percent and prices in restaurants are 31 percent below normal, on average.
The National Confederation of Young Entrepreneurs (CONAJE) promotes events to raise awareness among people about the taxes they are paying without even knowing it.
The president of CONAJE, Marduk Duarte, told IPS that the current tax system is "retrograde and dense."
As part of the Movement for an Efficient Brazil, which is attempting to collect 1.4 signatures to present a petition to Congress, the CONAJE proposes reforms based on tax reduction, simplification and transparency, along with public spending cuts.
Duarte pointed to the fiscal wars between Brazil's states over attracting investment, and to the need for improved distribution of tax revenue among municipalities, states and the federal government.
"With a lower, more balanced tax burden, we could make a serious dent in tax evasion and informality," Olenike said.