Tax Reform and the Impact on Taxpayer Life

By: André Elali

Since I started my research activities in tax law, I hear talking about tax reform, in VAT, in taxing more “big fortunes”, in tax progressivity and in tax justice. Almost systematically, such themes are debated with superficiality, lack of technique, ideological premises, and overt hypocrisy. First, it should be understood that taxation is not an independent process of the economic system. It depends directly on what happens in the market, how people interact, how the state regulates, how the authorities play their roles. Taxation is a mechanism of financial support of the Fiscal State (SteuerStaat), expression that is linked to the coexistence of the imposing phenomenon to the market, to capitalism, to economic activities. There is no taxation without companies and without economic activities. Taxation survives from the market. Therefore, the market must be considered whenever thinking about the rationality of the system.

On the other hand, VAT, designed in France as a value added tax, has nothing to do with Brazilian ICMS. This, quite contrary to what it should, is a regressive tax, which generates externalities (market failures) and institutional instability, as it is within the sphere of competence (power) of the states and the Federal District. How can a national market be stable and dynamic with a tax that has 27 different legislations, enforcement methods and interpretations? How can Mercosur work depending on these 27 states that are part of the Federation but do not think of the federative model but the tax collections for payroll expenses? Inter alia, the Federal State does not have conditions to maintain more than 5,500 Municipalities without these having effective autonomy. Thousands of such entities have City Councils, Secretaries, Advisory Offices, all to do politics. Little efficiency, little utility, too much public spending and unquestionable hypocrisy. Nothing can change without a federal reform.

Another superficially treated element is the higher taxation of corporations and “great fortunes”. Taxation is not, by the way, an isolated element. At a time of need to control public spending, raising taxes is not a smart move if we think about the market and how economic agents act. Taxation is able to attract or drive away investments. And you can no longer tax only on ideology. This did not work in other more developed countries like France. Taxation is a technical movement of transfer of wealth from those who produce it. That is, before any argument to increase taxation, it is necessary to improve the form of public spending, which goes through all sectors of administration, and to adjust taxation to those that generate improvements in the economy, which achieves the objectives of the state and society. And adjusting taxation requires more careful scrutiny that avoids further injustice, regressiveness, “incentives with someone else's hat” and so on. It also goes through the analysis of state aid to religious entities, educational entities and political parties, which have a tax protection that today may not make sense. Society and the market pay the bill for these incentives and this creates more fiscal pressure for the state, which generates more taxation on the middle class and productive investments.

In summary, we live a moment of reflection, facing serious problems that need to be addressed without demagogy, superficiality and ideologies. We need more technique and a method that achieves what the Constitution provides. We need to achieve an effective model of fundamental rights and balance in social and economic relations. And none of this, in tax matters, will occur without a restructuring of the Federation. The rest is rhetorical.

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André Elali

PhD in Public Law from UFPE, Master from Presbyterian University Mackenzie (SP). Postdoctoral Internship at the University of Lisbon (Portugal). He is Assistant Professor at the Department of Public Law at UFRN and Visiting Scholar at Max-Planck-Institüt für Steuerrecht (Munich, Germany) and Queen Mary University of London (United Kingdom). Author and coordinator of dozens of books in the tax and regulatory area.



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