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The approved text brings greater complexity for the secretary compared to the original version, but it still represents a significant improvement in relation to the current model. The new wording appears to be more efficient and comprehensive.
According to the analysis presented, economic growth is affected by three main factors. The first factor is complexity, which influences the bureaucratic costs associated with calculating and paying taxes, as well as litigation. The second factor is cumulativeness, which increases investment costs and affects the competitiveness of national production. The third factor is allocative distortions. A tax reform completely resolved the effects of cumulativeness and allocative distortions, and partially resolved the effect of complexity. Although we have not achieved an ideal model, there has been a significant advance in terms of complexity compared to the current situation.
Furthermore, the existing system generates significant distortions in the organization of the economy. This results in allocative distortions, in which the economy is organized in an ineffective way due to the distortions present in the current tax system – and this needs to be fully corrected', he explained.
The transition from the source to destination taxation model, according to him, will have a profound impact on the way the economy will be organized and should put an end to tax competition between States. Furthermore, the prohibition of granting preferential treatment to specific sectors, beyond those provided for in the PEC (which, despite having grown in parliament, is still significantly smaller than the current one), should prevent inefficiencies in the allocation of resources. This measure is crucial to ensure a more efficient and equitable allocation of resources in the economy.
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Impact da tax reform No. economic growth
During the interview, the minister highlighted that the and impact da tax reform in the potential of economic growth of the country is not just limited to the simplification of the system − which has a direct effect on company efficiency and willingness to invest. He also highlighted that other aspects maintained in the bill should result in significant effects if it is approved by the National Congress.
“That is one of the factors at play, but there are two more, which are the Tax Burden current about investments and the harmful competition of national production − and both are comprehensively addressed in the proposed text”, he argued.
Depending on the source, the level of complexity and contentious currently it is around 100, and without exceptions, we would expect something around 10. With the changes proposed in Congress, the prediction is that the level of complexity will be around 30. This represents a considerable reduction in relation to the model current, but still a significant increase compared to the absence of exceptions,” the source stated.
“The issue of complexity and litigation go together”, he warned during an interview with InfoMoney. According to a study carried out by Insper, the contentious Brazilian tax reached the mark of R$5,44 trillion in 2019. The country is ranked 124th in the Doing Business ranking, which classifies economies according to the ease of doing business.
Appy highlights, however, that, despite the changes made during the parliamentary process, the project represents a significant advance compared to the current tax system, as it still offers greater simplicity, eliminates cumulation and combats allocative distortions that harm the productivity of the Brazilian economy. He also believes that the matter can unlock the country's potential Gross Domestic Product (GDP), end the tax war and provide greater transparency for taxpayers.
The additions made by legislators to the proposed tax reform of taxes on consumption (PEC 45/2019), while it was debated in the National Congress, may not only negatively influence the aliquot standard of new taxes to ensure a Tax Burden neutral, but also complicate the system beyond what was initially planned.
The extraordinary secretary of tax reform of the Ministry of Finance, bernard appy, one of those responsible for the original version of the text under discussion, argues that more intricate rules could harm, to a certain extent, one of the pillars of the PEC: the reduction of the level of litigationjudicial and administrative measures related to tax issues – one of the main problems of the current model.
Source: InfoMoney
