Considerations on taxes in Brazil
The Brazilian tax system is a legacy of the Empire, a period that was initially focused on taxes on imports. It had its first significant change only with the Constitution of 1934, when internal taxes on products began to gain projection. In 1960 a reform in order to increase the storage capacity of the state and increase the economic efficiency of the system was introduced. After 1960, alterations were made only in the sense of raising the storage capacity and reduce the degree of distribution of taxes between the federal entities. The end result is that the system is caught in a vicious circle, where tax rates are high and taxes are created. The Brazilian tax reality is notoriously complex, bringing a huge financial cost to the taxpayer, and also causing the constant insecurity of being or not complying with all obligations required by the tax authorities.
The site IBPT – Brazilian Institute of Tax Planning – includes data for 2006 that demonstrate the existence of about 61 taxes levied in Brazil, including taxes, fees and contributions. The system is further overloaded by the huge amount of rules governing the tax system, supplementary laws, ordinary laws, decrees, orders, instructions. There are over 3,000 standards in effect, and the cost that companies have to comply with ancillary obligations is about 1% of their turnover. Those human needs for which the state is responsible, can only be met from the collection of taxes. Moreover, the existence of tax collection is essential for the organized state to maintain itself.
General considerations on the national tax structure
The real growth of federal revenues grew more quickly between 1998 and 2004. Nevertheless, the differences noted throughout that period are too sharp to be explained only by higher rates. The additional variable used to explain the recent behavior of the collection, where successive records are announced, is the surveillance effort, which was significantly increased over the last ten years. During that period there was a move towards to raise the efficiency of the supervisory structure through increases in infrastructure, personnel and new laws.
Revenue gains with increases in existing rates are potentially higher than those that would occur with the creation of new taxes. One of the Brazilian government's objectives was, in recent years, raising revenue to reduce the public deficit, with the exchange of more complex taxes by less complex collection and can be cited as an example of this strategy the creation of the CPMF, producing significant gains. Additional gains from such exchange of taxes are obtained by more effective surveillance for less complex in terms of tax collection.
It can be seen that the level of effort made by the federal government in order to increase tax revenue, was not negligible in recent years. The increase in the number of registered companies in the outstanding debt shows the growing work of the Attorney General of the National Treasury. There is a direct relationship between revenues and the balance in charge, indicating a high degree of importance of the efforts made by the authorities in the audit.
Tax policy and social function tribute
It should be stressed how aloof are individuals before tax levies. The story of all time, is filled with expressions of displeasure about the state initiative to make tax releases, mainly because, in purely arithmetical terms, the payment of taxes produces impoverishment of the taxpayer. On the other hand, that same taxpayer is not always pleased with the way the state manages the earned financial resources. Brazil is an economy with low tax tradition, where evasion and avoidance are not suppressed with the same intensity observed in other countries with more solid tax tradition.
The relationship between the state and the taxpayer has been characterized for a long time as a relationship of power and coercion. In constitutional terms, the highlights are the principles that seek to delimit the state action. This action falls within the context of tax policy. The tax policy, although it consists of tax collection instrument necessarily need not result in imposition and may have tax and extrafiscal character. It is understood as fiscal policy, taxation of activities carried out with the purpose of raising money, or transferring money from the private to the public coffers. The state just wants to get funding. Extrafiscal policy through the tax legislation could encourage or discourage behavior, according to the interests of society, through a regressive or progressive taxation, or for the granting of tax incentives. It can be said that through this policy, taxation activity is intended to interfere in the economy, i.e. the relations of production and circulation of wealth.
The commitment to the economic development inserted within a theoretical dissociation with the guarantee of equality of opportunity has become latent in the Federal Constitution of 1988, establishing a duty to ensure the full exercise of citizenship within the fundamentals of the Brazilian democratic state. The text of the 1988 Constitution was a milestone, containing legal provisions committed to eradicating poverty and reducing social inequalities, prohibition of discrimination of origin, sex, race and color. In this context, the state assumed new front should those with which exercises its power, starting to design public policies committed to the enhancement of life and reducing inequalities. In this aspect the 1988 Constitution, in a leading position and effective in the economic area, takes the economic model of welfare, giving the state agent role responsible for the planning and creation of public policies for economic development linked to the promotion of economic development, in conjunction with the reduction of inequalities of opportunity policies. Within the new perspective inaugurated by the 1988 Constitution, the committed economic development with social question arises not only as a necessity, but also as state power and duty, imbued with wide autonomy to define its public policies, which brings out of tax law issues as an indispensable tool. Primarily tribute manifests itself in the form of essential burden to finance state activities committed to the creation of social policies.
Tax burden in Brazil
The first known measure of the Brazilian tax burden was made in 1947 and resulted in a percentage of 13.8% of GDP. Since then, the measure has been growing gradually and continuously. Yet, according to data from the Internal Revenue Service of Brazil, in 1965, the Brazilian tax burden reached 19% of GDP. With the change in the Brazilian tax system, made possible by Amendment No. 18 of 1 December 1965, there was significant growth, reaching up to 26% of GDP index. In 1986, the analysis of the tax burden resulted in 26.2% of the national GDP. The analysis of the Federal Revenue of Brazil for 2005 indicates the percentage of 37.37% of GDP. The Brazilian tax burden amounts to 1/3 of the GDP share and places Brazil in the list of countries with the highest burdens in the world, comparable to France, Germany and Sweden, without, however, promoting the same return for the population that these countries provide.
Noteworthy in these figures the importance of indirect taxes levied on all taxpayers. Given this number, it can be inferred that in Brazil, taxes have high share in GDP, these numbers consistent with the levels of developed countries and incompatible with the low quality of state consideration offered, especially in the social sphere. The explicit dichotomy, obtained by analysis of the collection product in relation to the state consideration leads to the unequivocal conclusion that the high national tax revenue is lost before reaching its intended purpose. Revenue collections annually achieves a record: in contrast, investments in state consideration of social services and projects experience a stagnation of the amounts invested, covering the inversely proportional to the growth path, compared to what it collects and population increase.
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer by a governmental organization in order to fund government spending and various public expenditures, and tax compliance refers to policy actions and individual behaviour aimed at ensuring that taxpayers are paying the right amount of tax at the right time and securing the correct tax allowances and tax reliefs. The first known taxation took place in Ancient Egypt around 3000–2800 BC. A failure to pay in a timely manner (non-compliance), along with evasion of or resistance to taxation, is punishable by law. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent.
An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them. Income tax generally is computed as the product of a tax rate times the taxable income. Taxation rates may vary by type or characteristics of the taxpayer and the type of income.
An ecotax or green tax is a tax levied on activities which are considered to be harmful to the environment and is intended to promote environmentally friendly activities via economic incentives. Such a policy can complement or avert the need for regulatory approaches. Often, an ecotax policy proposal may attempt to maintain overall tax revenue by proportionately reducing other taxes ; such proposals are known as a green tax shift towards ecological taxation. Ecotaxes address the failure of free markets to consider environmental impacts.
A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, so that the average tax rate exceeds the marginal tax rate. In terms of individual income and wealth, a regressive tax imposes a greater burden on the poor than on the rich: there is an inverse relationship between the tax rate and the taxpayer's ability to pay, as measured by assets, consumption, or income. These taxes tend to reduce the tax burden of the people with a higher ability to pay, as they shift the relative burden increasingly to those with a lower ability to pay.
A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term progressive refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate. The term can be applied to individual taxes or to a tax system as a whole. Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability to pay, as such taxes shift the incidence increasingly to those with a higher ability-to-pay. The opposite of a progressive tax is a regressive tax, such as a sales tax, where the poor pay a larger proportion of their income compared to the rich.
Tax noncompliance is a range of activities that are unfavorable to a government's tax system. This may include tax avoidance, which is tax reduction by legal means, and tax evasion which is the criminal non-payment of tax liabilities. The use of the term "noncompliance" is used differently by different authors. Its most general use describes non-compliant behaviors with respect to different institutional rules resulting in what Edgar L. Feige calls unobserved economies. Non-compliance with fiscal rules of taxation gives rise to unreported income and a tax gap that Feige estimates to be in the neighborhood of $500 billion annually for the United States.
A tax cut represents a decrease in the amount of taxpayers’ money that go towards government revenue. Tax cuts decrease the revenue of the government and increase the disposable income of taxpayers. Tax cuts usually refer to reductions in the percentage of tax paid income, goods and services. As it leaves consumers with more disposable income, tax cuts are an example of an expansionary fiscal policy. Tax cuts also include other taxation benefits such as tax credit, deductions and loopholes.
FairTax was a single rate tax proposal in 2005, 2008 and 2009 in the United States that includes complete dismantling of the Internal Revenue Service. The proposal would eliminate all federal income taxes, payroll taxes, gift taxes, and estate taxes, replacing them with a single consumption tax on retail sales.
Although the actual definitions vary between jurisdictions, in general, a direct tax or income tax is a tax imposed upon a person or property as distinct from a tax imposed upon a transaction, which is described as an indirect tax. There is a distinction between direct and indirect tax depending on whether the tax payer is the actual taxpayer or if the amount of tax is supported by a third party, usually a client. The term may be used in economic and political analyses, but does not itself have any legal implications. However, in the United States, the term has special constitutional significance because of a provision in the U.S. Constitution that any direct taxes imposed by the national government be apportioned among the states on the basis of population. In the European Union direct taxation remains the sole responsibility of member states.
An indirect tax is a tax that is levied upon goods and services before they reach the customer who ultimately pays the indirect tax as a part of market price of the good or service purchased. Alternatively, if the entity who pays taxes to the tax collecting authority does not suffer a corresponding reduction in income, i.e., impact and tax incidence are not on the same entity meaning that tax can be shifted or passed on, then the tax is indirect.
A consumption tax is a tax levied on consumption spending on goods and services. The tax base of such a tax is the money spent on consumption. Consumption taxes are usually indirect, such as a sales tax or a value-added tax. However, a consumption tax can also be structured as a form of direct, personal taxation, such as the Hall–Rabushka flat tax.
Taxation in France is determined by the yearly budget vote by the French Parliament, which determines which kinds of taxes can be levied and which rates can be applied.
A government budget is a document prepared by the government and/or other political entity presenting its anticipated tax revenues and proposed spending/expenditure for the coming financial year. In most parliamentary systems, the budget is presented to the legislature and often requires approval of the legislature. Through this budget, the government implements economic policy and realizes its program priorities. Once the budget is approved, the use of funds from individual chapters is in the hands of government, ministries and other institutions. Revenues of the state budget consist mainly of taxes, customs duties, fees and other revenues. State budget expenditures cover the activities of the state, which are either given by law or the constitution. The budget in itself does not appropriate funds for government programs, hence need for additional legislative measures.
In economics, the excess burden of taxation, also known as the deadweight cost or deadweight loss of taxation, is one of the economic losses that society suffers as the result of taxes or subsidies. Economic theory posits that distortions change the amount and type of economic behavior from that which would occur in a free market without the tax. Excess burdens can be measured using the average cost of funds or the marginal cost of funds (MCF). Excess burdens were first discussed by Adam Smith.
Tax policy is the choice by a government as to what taxes to impose, in what amounts, and on whom. It has both microeconomic and macroeconomic aspects. The macroeconomic aspects concern the overall quantity of taxes to collect, which can inversely affect the level of economic activity; this is one component of fiscal policy. The microeconomic aspects concern issues of fairness and allocative efficiency .A country’s tax regime is a key policy instrument that may negatively or positively influence the country's economy.
The Fair Tax Act is a bill in the United States Congress for changing tax laws to replace the Internal Revenue Service (IRS) and all federal income taxes, payroll taxes, corporate taxes, capital gains taxes, gift taxes, and estate taxes with a national retail sales tax, to be levied once at the point of purchase on all new goods and services. The proposal also calls for a monthly payment to households of citizens and legal resident aliens as an advance rebate of tax on purchases up to the poverty level.
The Fair Tax Act is a bill in the United States Congress for changing tax laws to replace the Internal Revenue Service (IRS) and all federal income taxes, payroll taxes, corporate taxes, capital gains taxes, gift taxes, and estate taxes with a national retail sales tax, to be levied once at the point of purchase on all new goods and services. The proposal also calls for a monthly payment to households of citizens and legal resident aliens as an advance rebate of tax on purchases up to the poverty level. The impact of the FairTax on the distribution of the tax burden is a point of dispute. The plan's supporters argue that it would decrease tax burdens, broaden the tax base, be progressive, increase purchasing power, and tax wealth, while opponents argue that a national sales tax would be inherently regressive and would decrease tax burdens paid by high-income individuals.
Optimal tax theory or the theory of optimal taxation is the study of designing and implementing a tax that maximises a social welfare function subject to economic constraints. The social welfare function used is typically a function of individuals' utilities, most commonly some form of utilitarian function, so the tax system is chosen to maximise the aggregate of individual utilities. Tax revenue is required to fund the provision of public goods and other government services, as well as for redistribution from rich to poor individuals. However, most taxes distort individual behavior, because the activity that is taxed becomes relatively less desirable; for instance, taxes on labour income reduce the incentive to work. The optimization problem involves minimizing the distortions caused by taxation, while achieving desired levels of redistribution and revenue. Some taxes are thought to be less distorting, such as lump-sum taxes and Pigouvian taxes, where the market consumption of a good is inefficient and a tax brings consumption closer to the efficient level.
Taxes provide the most important revenue source for the Government of the People's Republic of China. Tax is a key component of macro-economic policy, and greatly affects China's economic and social development. With the changes made since the 1994 tax reform, China has sought to set up a streamlined tax system geared to a socialist market economy.
Most local governments in the United States impose a property tax, also known as a millage rate, as a principal source of revenue. This tax may be imposed on real estate or personal property. The tax is nearly always computed as the fair market value of the property times an assessment ratio times a tax rate, and is generally an obligation of the owner of the property. Values are determined by local officials, and may be disputed by property owners. For the taxing authority, one advantage of the property tax over the sales tax or income tax is that the revenue always equals the tax levy, unlike the other taxes. The property tax typically produces the required revenue for municipalities' tax levies. A disadvantage to the taxpayer is that the tax liability is fixed, while the taxpayer's income is not.
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