PORTO ALEGRE, Brazil – Brazilians with lower spending power are those who suffer most from the country’s heavy tax burden, according to a study by the government-run Institute of Applied Economic Research (Instituto de Pesquisa Econômica Aplicada, IPEA).
The data shows the way in which taxes are levied on products contributes to social inequality because most taxes are regressive, meaning they’re collected by businesses and therefore included in the prices paid by consumers.
This is exactly what happens with the federal sales tax (IPI), the contribution to welfare financing (COFINS) and the state tax on goods and services (ICMS), as all of the taxes are added to the overall cost of products.
“A major problem is the tax on basic necessities, such as rice and beans, electricity, and bus fares, for example,” says Claudio Hamilton Matos dos Santos, coordinator of public finance of the IPEA directorate of macroeconomic studies (DIMAC). “Poorer Brazilians use up a great part of their income on these items, therefore they are heavily taxed.”
Santos explains that there are few progressive taxes – those aimed toward the rich – such as personal income tax (IRPF) and property tax (IPTU).
“Taxation can help in the distribution of wealth in Brazil as soon as it is based more on progressive taxes, which also have the advantage of being transparent for the taxpayer,” Santos points out.
Santos believes taxes should be higher for the rich and the government must improve collection enforcement.
The tax burden can be measured in terms of the number of days one must work just to pay taxes. A study by the Brazilian institute of tax planning (Instituto Brasileiro de Planejamento Fiscal, IBPT) showed, on average, one has to work from Jan. 1 until May 27 to pay a yearly tax bill.
IBPT created a “taximeter” that enables taxpayers to follow tax collection on federal, state and municipal levels online via the Web site www.impostometro.com.br.
By IBPT’s calculations, taxes represented about 36.5% of the Brazilian gross domestic product (GDP) last year.
In 2007, taxes represented 36% – a rate that was the highest in South America, according to research published by the Economic Commission for Latin America and the Caribbean (ECLAC) last year.
Argentina was second at 29%, followed by Uruguay (24%) and Chile (21%).
“Brazil is the heaviest taxer [in South America], especially when taking into account the quality of available public services,” João Eloi Olenike, technical director of the IBPT, says. “There are some countries that have higher burdens, but provide quality public services throughout the life of their citizens.”
In 2007, Brazil’s taxes represented 34.7% of the GDP, which is higher than Switzerland’s (29.7%) and the United States’ (28.3%), but lower than Denmark’s (48.9%) and Sweden’s (48.2%), according to a study by the Brazilian ministry of finance.
Olenike said that taxation built into consumption plays the biggest role in the widening of inequality.
“Many people buy goods not knowing they are paying taxes,” Olenike says.
The situation is worsened by tax evasion. It is estimated that for every R$3 (US$1.66) paid in taxes, R$1 (US$0.55) goes unpaid.
“There is an underground economy that accounts for almost 30% of the GDP and this is a crime,” says Vilson Antonio Romero, president of the Brazilian national union of federal revenue auditors (Sindifisco Nacional) in Porto Alegre. “If every person paid their part, all would pay less.”
Brazil’s diverse tax system – the country has more than 50 types of taxes – contributes to the overall problem.
Tax reform is expected to be a major part of presidential candidates’ platforms leading up to the October election.
“There is a strong argument for something like a single or value-added tax, but this has never been put forward in simulations that would allow us to know the right percentage that would guarantee ideal collection and [similar levels of] investment,” Romero says.