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More taxes that will hinder the economy

The government excites the country when says about simplify taxes. But, sometimes, this simplification adds some increases.

From the news office

The elected political or technical government who intends to change taxes in Brazil should be obsessive about two goals. First: the burden of taxes over the society can not increase. The Brazilian has delivered 36% of everything he produces to the government, a much higher share than recorded in other countries with the same level of income. He also pays more taxes than Americans, Japanese and Australians, who have much better public services. The second goal: the payment of taxes in the country must become simpler than now. An assessment of facility of paying taxes, Brazil ranked 177th place among 189 countries in the latest assessment by the World Bank. We are very far even the average for Latin America, 121st, and the regional champion, Chile, on 29th in the world. It is understood that it is especially difficult, for the economic team of the federal government, observes these two requirements in 2015, the year in which it was necessary to have an adjustment of public accounts. In one particular case, which is part of the tax changing package in assessment by the Minister of Finance team, Joaquim Levy, they simplify in one side to charge more in another. If it is approved, the measure will be harmful to the economy.

This is the unification of the collections of the Programa de Integração Social (PIS - Social Integration Program) and the Contribution to Social Security Financing – Cofins (Contribuição para o Financiamento), two corporate obligations. The Brazilian Institute of Planning and Taxation – BIPT (Instituto Brasileiro de Planejamento e Tributação) simulated how the change would reach a wide variety of productive sectors - human resources, engineering, accounting, billing, credit, telecommunications and other corporations . The study included more than 1,200 companies and was made at the request of Fenacon, a representative organization of the service sector. If the change under study was adopted, these companies would have to pay around the double of PIS and Cofins – the increases in charges vary between 80% and 137%, according to the segment. The impact on the final prices of those services would be between 3.1% and 5.5%. On average, 4.3% of increasing in the costs in the services which are provided to citizens and other companies.

Service companies would have to choose between two bad ways: to absorb this cost (which would have a direct impact on their ability to invest, save the same jobs, hiring and increasing salaries) or to pass it on to the consumer. It should be considered that the services

sector comprises 7 million of the approximately 16 million existing companies in the country and accounts for 40% of jobs - 19.4 million of the 48.5 million existing jobs.

PIS and COFINS are not taxes, but "contributions". In the language of tax experts, a contribution is not voluntary. Only, differently of the taxes, the government can change it more easily, can collect it faster and destine it for a particular purpose. The measures, under consideration, in the case of such contributions, include two changes. The first is to unify the collection. Currently, the majority of service companies make two different payments, totaling 3.65% of its sales. The two contributions would be unified - which, in theory, is a nice change - but they would result, together, in a larger payment of 9.25% on sales - which would be a bad move (although the change confer the right to some discounts, the tax credits).

The second novelty would also harm too much the business services. Currently, companies are divided into two categories: those that pay on a cumulative regime and the ones that pay the non-cumulative regime. The last one is used by the industry. It allows each company to transform into tax credits (discount in payable taxes) contributions already paid by its suppliers. Thus, the plastic manufacturer does not pass the tax cost to his customer, the auto parts maker. This, in his turn, does not pass the tax cost to his customer, the automaker. The system was adopted in 2002, under the rousing speech of tax simplification. In change, however, the government has seized the opportunity to increase the burden of contributions.

For the industry, it is worth to follow this complicated system. It reduces the final price of the products by containing the cascading payment from a bad tax. After all, the purchase of raw materials accounts for a large part of the costs of the industrial sector, more than 40%. With the change, however, all sectors, including trade and services, they would work for this system.

The problem is that the raw materials, the goods, account for only 13% of the final cost of services. They would generate just a few tax credits to abate. Proportionally, car makers spend less with purchase of equipment and much more with people. The payroll represents 55% of their costs compared to 23% in industry. And employees are not considered as "input", able to generate credits with the IRS. Policymakers should take special care not to adopt the tax measures, an industrialist vision of the economy, as this sector was more virtuous than others. The service sector includes segments with a high degree of innovation and with great potential, such as software development, environmental services, design, fashion, tourism and

gastronomy. They can not be sacrificed in the name of the tax collection fury. Simplifying the infernal system of taxes, fees and contributions in Brazil is a front noble battle. But it does not go far if hamper business and serve as a smokescreen for further increases in taxation.

Source: Revista Época

Version: Grazielle Segeti

 

 
   

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