The unfair brazilian tax burden: a must read for everyone interested in investing or moving to Brazil

The Brazilian tax burden, the sum of the collection of all federal, state and municipal governments, grew 341.6% in the last decade. But the country occupies the 54th position among the countries that give the greatest return to the citizen. The 40.01% of the tax burden in Brazil is only behind countries like Sweden, Norway, France and Italy. The weight of Brazilian taxes is the largest in Latin American developing countries, and is therefore one of the highest tax burdens in the world, and the National Tax System is also one of the most complex.

It is estimated that there are about 61 taxes, including taxes and contributions, and about 95 additional obligations that a company must meet to try to keep up with the IRS. One should take into account the reality of Brazilian tax has to be seen under two aspects: on one hand the taxpayers complain about the high tax burden imposed, despite a process of experiencing economic recession too, on the other hand, the treasury departments federal, state and city face increasing reduction of sources of funding essential. Urgent reform of the National Tax System which was expected to be operationalized from the third millennium, however, have already reached retirement and remains in political discussions.

“Brazilians pay taxes in the same volume as the inhabitants of the rich nations of the world but receive services in African standards.”

Brazil has been considered perverse in relation to social inequalities as measured by inequality in the distribution of national income. This occurs in the face of that 10% of the population appropriates 50% of income, while 50% receive about 10%. Also in relation to income, it is confirmed a harsh reality in relation to consumption: the share of population receiving low wages or living in the informal labor pays more taxes proportionately in relation to classes with greater purchasing power. The overall tax burden of Brazilian companies on Revenues matter 33.25%, of Total Costs / Expenses, 47.14% and on income, 52.23%.

Brazil has a higher tax burden than the United States and other European countries that rely on an infrastructure of quality public services, which does not occur in Brazil. The sum of this greedy fiscal inefficiency shown by the state has a terrible effect on the Brazilian economy and society. The excessive tax burden and poorly distributed reduces the ability of consumption and savings, which has contributed to economic stagnation. By examining the influence of these charges on the middle class, one has an idea of how serious the problem is in the country. According to the Brazilian Institute of Tax Planning, the middle class is responsible for 67% of the collection of income tax, and 70% in taxes on property (property tax, for example) and more than half of the taxes on consumption, those to be paid on any purchase. And the middle class pays even more to access services that should be supplied by the State. The middle class bears a very high tax burden, because it pays tax on income, consumption and has to hire services to compensate for the absence or lack of public service. They end up paying twice. The result is a situation of injustice tax without equal in the world. Brazilians pay taxes in the same volume as the inhabitants of the rich nations of the world but receive services in African standards.

The complexity and irrationality of the Brazilian Tax System greatly increases the cost of tax administration, either to the Government, either to the taxpayer. So it’s no use talking about tax reform if there is clear political will to tackle the two fundamental problems: reducing the tax burden and simplify the system. It can be argued, finally, that the Brazilian is the citizen who pays more taxes in Latin America and higher taxes in the United States, and that the burden of taxes punishes the productive sector and the domestic consumer.

Comparison of the tax burden in the countries
The tax burden in Brazil is higher than that of countries such as Japan, the United States, Switzerland and Canada. The comparison study was done by the Brazilian Federal Revenue and takes into account the latest data, established in 2008, among the member countries of OECD (Organization for Economic Cooperation and Development).
While the tax burden in the pocket of citizens arrived in 2008 to 34.41% in Brazil – a record level – in Japan was 17.6%. The load was also lower, for example in Mexico (20.4%), Turkey (23.5%) in the United States (26.9%), Ireland (28.3%), Switzerland (29, 4%), Canada (32.2%) and Spain (33%).
More than in Brazil, even in comparison with OECD countries are the United Kingdom (35.7%), Germany (36.4%), Portugal (36.5%), Luxembourg (38.3%), the Hungary (40.1%), Norway (42.1%), France (43.1%), Italy (43.2%), Belgium (44.3%), Sweden (47.1%) and Denmark ( 48.3%).

High taxes also for businesses
The tax burden equally victims companies, who pay taxes on everything: sales, profit, payroll. The weight of taxes on productive activity is nearly twice the world average, with negative effects of all kinds. The most obvious is the loss of external competitiveness, mortal sin in a world economy increasingly globalized. Taxation makes everything more expensive in Brazil: manpower, raw material, infrastructure, the export operation. It is impossible to export, and as the global economy the tendency is to reduce barriers to imports, it becomes increasingly difficult to sell to the domestic market because of competition from foreign products. Along with all that put bureaucracy, inefficiency and lack of transparency of the tax system, and it is evident that very few investors will decide to put their money in Brazil. The most painful example comes from the ICMS, the main consumption tax in the country, which is governed by 27 different laws, one for each state. Scania, one of the largest makers of trucks in Brazil, has 25 employees assigned to take care of the tax area in the country. In Sweden, where is their headquarters, there are just three people. Details: the swedish operation makes seven times more money than the Brazilian one.

This fact alone would have devastating consequences on growth, income and employment. But the worst and most cruel loss of competitiveness occurs internally, and is between companies that pay taxes and those who dodge. This second group, meeting under the general label of “informal economy”, already accounts for 40% of national income, according to recent study by McKinsey. Again, the tax structure is responsible for this distortion. Not only because the load is high, but because the system is so complicated and illogical that most economists usually leave out the econo terms to define it simply as “dumb.”

The main manifestation of the stupidity of the system is heavily taxing the production. It is the opposite of what is done in the developed countries, that primarily tax income. In Brazil, the companies account for 80% of the collection, which serves as a powerful stimulus to the informality and tax evasion. This hampers growth because it reduces productivity, wages and precarious flattens the labor market, a vicious cycle that ends with a fall in revenues and more cargo over those who still pay taxes. “Whoever cheats has a very big advantage. Even the most efficient companies can not compete with those who fail to pay taxes.

A family with income of 5000 reais
pay per month in taxes and direct contributions: R$ 1269
Embedded in taxes on goods and services such as power and telephone, are added more: R$ 795
Spending on education, health and safety, which should be provided by the state, cost more: R$ 1220
The sum of the what family pays in taxes plus expenses to pay for services that the state should provide and withholds is: R$ 3284
Or …
65.7% of the family income

Sources: Wikipedia, Veja, O Globo.

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Joe Cloud
Dutch, American, Brazilian... lived there for 5 years and owns property in Brazil. Out of the country for a few years now and would like to go back, however current circumstances tell me it's not the right time.