Brazil busi­nesses hope for sim­pler tax sys­tem in 2020

Kuwait Times - - Business -

SAO PAULO: Alex Sero­dio strug­gles to find enough su­perla­tives to de­scribe Brazil’s cum­ber­some tax sys­tem. “I think rocket sci­ence might be eas­ier,” quips the on­line beauty prod­ucts re­tailer in Sao Paulo. That could change this year, as law­mak­ers con­sider var­i­ous pro­pos­als to sim­plify one of the world’s most com­pli­cated and time-con­sum­ing tax regimes.

Pres­i­dent Jair Bol­sonaro, who came to power in Jan­uary 2019 on a prom­ise to slash red-tape for busi­nesses, has made tax re­form a pri­or­ity this year. It is an am­bi­tious goal that pre­vi­ous gov­ern­ments have failed to achieve. While tax cuts are not an op­tion for the cash­strapped coun­try, mod­ern­iz­ing the sys­tem is seen as key to spurring eco­nomic growth, boost­ing for­eign in­vest­ment and en­abling the pri­vate sec­tor to flour­ish.

“It’s re­ally, re­ally, re­ally, re­ally, re­ally com­plex,” says Sero­dio, whose com­pany Beleza na Web, or Beauty on the Web, em­ploys a team of ac­coun­tants and lawyers to nav­i­gate the labyrinthi­ne tax rules that are con­stantly chang­ing. “This is why you don’t have many (for­eign) re­tail­ers in Brazil... it’s too com­pli­cated.” An av­er­age of 31 tax rules are in­tro­duced or amended ev­ery day, ac­cord­ing to the Brazil­ian In­sti­tute of Plan­ning and Tax­a­tion, mak­ing com­pli­ance al­most im­pos­si­ble for many com­pa­nies.

“It’s so com­plex that we spend a lot of our de­ci­sion-mak­ing time on this and not how to add more value to con­sumers,” Sero­dio adds.

He is not alone. A medium-sized com­pany in Brazil spends more than 1,500 hours a year pre­par­ing and pay­ing taxes, ac­cord­ing to the World Bank’s lat­est Do­ing Busi­ness re­port.

It ranked Brazil among the 10 worst coun­tries for pay­ing taxes-only slightly bet­ter than the Congo and Venezuela. That com­pares with 175 hours in the United States and 114 hours in Bri­tain.

“I of­ten joke that even when we sleep, we’re pay­ing taxes,” Gabriel Kan­ner of Brasil 200, a busi­ness lobby group, told lo­cal me­dia re­cently. Brazil has 63 dif­fer­ent taxes, in­clud­ing mul­ti­ple levies on goods and ser­vices. These con­sump­tion taxes, which un­fairly hurt the poor and are a night­mare for busi­nesses to cal­cu­late, are in the cross-hairs of law­mak­ers.

Their rates can vary wildly across Brazil’s fed­eral dis­trict, 26 states and 5,570 mu­nic­i­pal­i­ties, de­pend­ing on the prod­uct or ser­vice and ju­ris­dic­tion. “It’s to­tally ir­ra­tional,” a vexed Flavio Rocha, chief ex­ec­u­tive of re­tail gi­ant Ri­achuelo, tells AFP.

“A big in­dus­try in Brazil is the tax fight in­dus­try.” In the north­east­ern state of Maran­hao, for ex­am­ple, 12 dif­fer­ent tax rates ap­ply to milk de­pend­ing on its fat con­tent and the animal it came from, ac­cord­ing to Sao Paulo-based En­deavor, which as­sists star­tups.

“It is a sys­tem that is old, oner­ous, very ex­pen­sive and com­plex for com­pa­nies,” says Mon­ica Ben­dia, a tax spe­cial­ist at UHY Ben­do­raytes, an au­dit­ing firm in Rio de Janeiro.

Win­ners and losers

Sev­eral pro­pos­als for stream­lin­ing the sys­tem for tax­ing goods and ser­vices are on the ta­ble. Two plans in Congress pro­pose com­bin­ing sev­eral mu­nic­i­pal, state and fed­eral taxes into a val­ueadded levy. They also push for a se­lec­tive tax on goods such as al­co­hol and cig­a­rettes. The chance of get­ting one of the pro­pos­als through the lower and up­per houses seems higher than in the past, ex­perts say.

Some taxes are in­cluded in the Con­sti­tu­tion and changes to those have to be ap­proved by 60 per­cent of law­mak­ers in both houses. “We have a fed­eral dis­trict, 26 states and more than 5,500 mu­nic­i­pal­i­ties and each of them has a tax author­ity,” says Lin­neu de Al­bu­querque Mello, a tax lawyer in Rio de Janeiro. “When you talk about over­haul­ing the tax sys­tem be­cause it’s not ef­fi­cient, if you change any­thing, some­one will lose and some­one will gain.”

The gov­ern­ment’s suc­cess in win­ning con­gres­sional sup­port for its pen­sion over­haul last year-some­thing pre­vi­ous ad­min­is­tra­tions had also failed to do-has raised hopes for the pos­si­bil­ity of tax re­form. “We have a very spe­cial mo­ment to do this, so it would be ter­ri­ble if we lost this op­por­tu­nity be­cause we don’t know when we will have an­other one,” says Ma­rina Thi­ago of En­deavor.

Sero­dio does not fa­vor a par­tic­u­lar pro­posal. He just wants law­mak­ers to make the sys­tem “very sim­ple.” “Do that and we are go­ing to be able to get more trac­tion and pay more than we pay today,” he says. — AFP

The Brazil­ian Congress in Brasilia. Law­mak­ers in Brazil will con­sider in 2020 var­i­ous pro­pos­als to sim­plify one of the world’s most com­pli­cated and time-con­sum­ing tax regimes. — AFP

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