Brazil’s tax structure changes have not adapted to economic matrix changes
For years, the industry has been losing its share in the domestic product and exports, and its recovery and expansion will require alignment with best international practices, including within the tax sphere. There are two main reasons behind this shortfall: the process of deindustrialization of the Brazilian economy – which prompts industrial production to account for an increasingly smaller share of added value to the final price of goods –, and the extra-fiscal character of the IPI tax, which reduces collection in unencumbered sectors.
The event “Taxation 4.0: applicable taxes”, organized by the Nucleus for Fiscal Studies (NEF) of FGV’s Sao Paulo Law School (Direito SP) on April 25, discussed tax strategies to increase the industry’s competitiveness and sought to identify the components of the current tax system that hinder industrial progress, pointing to tax solutions aligned to the expansion needs of the industry and the country.
The first finding, shared by professor Robson Gonçalves (FGV Executive Education), is that there is a lot more interdependence between sectors than the classical attempt of splitting the calculation of the GDP between agriculture, industry, and services.
“Agriculture accounts for only 5% of the GDP, but the calculation of the agribusiness sector considers other products, such as fertilizers and tractors, which are relevant to the end activity”, he said.
According to the professor, it was not possible to create a smart tax structure to reflect the needs of the 3.0 industry, which makes it more difficult to think about adaptations for the 4.0 industry – marked by artificial intelligence and shifting job profiles.
“These changes do not boil down to a mere aggregation of activities, but should reflect the changing roles of the key stakeholders”, he said.
For Lucilene Prado, a lawyer at Derraik & Menezes Advogados, the main issue is that there were changes not just in the industries. Consumption patterns have changed and the needs of newer generations do not match the aspirations of previous generations.
“The economy is dematerialized and our taxation model is totally unfit to cater to these new aspirations”, he said.
One response to these aspirations can come from the tax reform project structured by the Center for Fiscal Citizenship (CCiF), led by economist Bernard Appy and FGV professors Eurico de Santi, Isaías Coelho and Nelson Machado.
The proposal establishes a single tax rate, which would replace all taxes in Brazil, including the IPI. According to professor Eurico de Santi, Brazil is one of the few countries that has taxes that levy only on the industry, which is reasons behind the domestic industry’s lack of competitiveness.