◼ ECONOMICS Bloomberg Businessweek November 11, 201933THEBOTTOMLINE Brazil’scongressis consideringseveral
proposalstooverhaulthetaxcode.There’sbroadsupportfor
reducingthenumberoflevies,butdetailswillbehardfought.support for a landmark pension overhaul,
theadministrationofPresidentJairBolsonarohas
setitssightsonrevampingthetaxcode,a goal
thathaseludedpriorgovernments.Thelower
houseandthesenatehaveputforwardtheirown
plans.VicePresidentHamiltonMouraopromised
onOct. 23 thata newsystemwillbeinplacebythe
middleofnextyear.
Thestakesarehigh.Brazil’staxburdenis 32%
ofgrossdomesticproduct,almost 10 pointshigher
thantheLatinAmericanaverage.A sweepingsim-
plificationcouldboostGDPby10%over 15 years,
accordingtoananalysisbytheCenterforFiscal
Citizenship,a SãoPaulo-basedthinktank.
Most of the complexity comes from the
value-addedtaxesassessedatthefederaland
statelevels,withtheirprofusionofbracketsand
exemptions.There’sbroadsupportformerg-
ingseveraltaxesintoonethatappliesuniformly
acrossall 27 states,yettheeffortcouldstillrun
agroundonthedetails.
It’shardtofindtherationalebehindmanyof
Brazil’staxes.Ethanolfuelforcarsis taxedat32%
inRiodeJaneirobutonly12%inSãoPaulo.And
thoserateschangeconstantly.ForAnaCarlaAbrao,
headoftheSãoPauloofficeoftheaccountingand
consultingfirmOliverWyman,theBraziliantaxsys-
temhasalwaysbeenthisway,withcountlessrules
andexceptionsfordifferentcompanies,different
industries,anddifferentproducts.“Forthatreason,
it’shardtocarryouta reform—becauseif youtry
tosimplifyandequalizethesystem,eachoneof
thesegroupsfeelswrongedandlobbiesagainst
thechanges,”shesays.What’smore,somelevies
arecodifiedintheBrazilianconstitution,soany
alterationmustbepassedasanamendment.That
requiresa three-fifthsmajorityinboththelower
houseandsenateandpromisesextendeddebate.
Whilesomeindustriesareinvestedinpreserv-
ingcherishedconcessions,mostofBrazilianbusi-
nessis clamoringforrelief.Companiesdevotean
averageof1,958hoursperyeartopreparingand
payingtheirtaxes,accordingtotheWorldBank—
morethaneighttimesasmuchtimeastheirpeers
inMexicoandArgentina.
“Weareworkingwithanenormoussupplyof
products,andeachindividualproducthasitsown
purchasetaxorsalestaxthatmaybedifferentin
eachregionandineachstate,”saysCarlosGuerra,
chiefexecutiveofGiraffas,a Brasilia-basedchain
of 400 fast-foodrestaurants.“Wespendweeks
tofigureoutthecostsduetothedifferentfiscal
classifications. It’s a real fiscal madhouse.” The
battalion of lawyers, accountants, and tax con-
sultants Giraffas employs to figure out how muchit owes consumes 5% of profits, Guerra says.
Alongside the professionals, an informal indus-
try of amateur accountants has sprung up to ser-
vice those without deep pockets. Assis de Souza, a
56-year-old elementary school teacher, moonlights
as a tax preparer for friends and family. He learned
to navigate the process in the 1990s, when forms
had to be completed by hand. “I’m not an accoun-
tant, but today I can make a nice bit of supplemen-
tary income,” he says.
Nathalia Torres, a 22-year-old college stu-
dent, learned the ropes working as an intern at
an accounting firm. In the two months leading
up to filing day on April 30, she earned around
2,000 reais preparing more than 100 returns. Most
of her clients are pensioners who don’t know how
to account for their income or young people start-
ing their own businesses.
Some of the country’s brightest minds can be
tripped up by the tax code’s complexity. Recepta
Biopharma SA, a cancer research company,
became the very first Brazilian firm to license a
drug patent abroad in 2015. Revenue from domes-
tic patents is usually exempt from the social contri-
bution tax on profit, as are exports in general, but
Recepta ended up facing a huge bill for exporting
intellectual property to the U.S.
“According to the Brazilian constitution, exports
should be exempt from social taxes,” says Fernando
Peres, president of Recepta. “But this immunity
was granted only for goods and services, and a pat-
ent is not a good or a service. So the tax authorities
say we have to pay.” The patent earned $65 mil-
lion for the company, and Brazilian tax authorities
demand a 10% cut. The matter is now before a state
court in São Paulo.
Tax cases can consume years awaiting adju-
dication.ValeSA,theRiodeJaneiro-basedcom-
panythatis theworld’sbiggestironoreproducer,
settled a $9.6 billion dispute in 2013 after a decade
of wrangling.
Leoncio, the lawyer with the giant tax book, has
labored in the field almost three decades, build-
ing up a towering animus over the years. He took
his creation to congress a few years ago to impress
on lawmakers the importance of fixing the system.
Fewer than 1% of the members came to see it. Says
Leoncio: “We pay 104 different taxes and, aside
from generating a huge amount of legal uncer-
tainty, this is a major obstacle in the life of each
citizen.” �Simone Iglesias and Murilo Fagundes,
with Rachel GamarskiDATA: BRAZIL TAX AGENCY, CITING OECD FIGURES
● Tax burden as a share
of GDPin 2016BrazilArgentinaChileColombiaMexicoPeru32%16%Latin America
average