Tax reform is not a zero-sum game, and all sectors can benefit, says Appy

The Extraordinary Secretary for Tax Reform, Bernard Appy, said this Wednesday (8) that the discussion of the proposal is not “a zero-sum game”, in which some win and others lose, and said that all sectors can benefit by simplifying the current system.

The declaration is an attempt to reduce resistance from economic sectors that fear being harmed by an increase in the tax burden after the approval of the PEC (proposed amendment to the Constitution) in the National Congress. Among these segments are services and agribusiness.

“Tax reform is not a zero-sum game, it is not a game in which one wins and the other loses. It is a game in which everyone wins,” said Appy at a luncheon with congressmen promoted by RenovaBR, a private entity dedicated to preparing people to run for elective office. In the audience were parliamentarians such as Senator Sergio Moro (União Brasil-PR), former Minister of Justice of Jair Bolsonaro (PL), and Congresswoman Tabata Amaral (PSB-SP).

“It is possible to make a design that in practice all sectors of the economy are benefited”, added the secretary. According to him, this perception needs to be considered in the “equation” of the reform, otherwise there will be difficulties in progress.

Appy’s main argument is that the approval of the text will improve the expectations of economic agents and expand the country’s growth potential, with positive effects on the income of companies and workers. In this way, the net effect would be positive for everyone, even if there is a redistribution of the burden between sectors.

Today, industry is one of the most taxed sectors, while services suffer less. According to Appy, the future is the unified taxation of the sectors, since the differentiation is less and less clear between goods and services.

Even with the change, the secretary stated that the reform will not result in an increase in the tax burden. “I can guarantee that the tax reform will be carried out without increasing the tax burden, not least because consumption is already heavily taxed in Brazil”, he said.

He stated that, in order to maintain the tax burden of all entities, estimates indicate a rate of 25%, with 9% for the Union, 14% for states and 2% for municipalities.

Tax reform has been placed as a priority by the Minister of Finance, Fernando Haddad (PT). According to Appy, the changes should occur in two moments.

“The first is consumption taxation, and the second, income taxation and possibly payroll. We will do it in two stages because the discussion on consumer reform is much more mature in the National Congress”, he said.

The reform of taxes on consumption should start from a combination between two texts already being discussed in Congress: PEC 45, in the Chamber of Deputies, and PEC 110, in the Federal Senate. The focus is on unifying five taxes: PIS, Cofins, IPI (all federal), ICMS (state) and ISS (municipal).

The result will be one or two value-added taxes—there’s a debate between a national rate, or a dual tax, with one rate for the federal government and another for states and municipalities. There would also be a selective tax, called by the secretary “sin tax” (sin tax), levied on products that generate negative effects on the economy.

According to Appy, there is convergence to migrate from the current system, considered dysfunctional, to a simpler model, with a single rate, few exceptions and taxation at the destination (that is, where the good or service is consumed).

He also defended the need to include states and municipalities in the reform. “The solution cannot go through maintaining the ICMS and the ISS. If we do that, we are condemning Brazil to grow less”, he said.

According to Appy, the current system has a fragmented base, credit losses along the chain and investment burden. Complex rules also increase the bureaucratic cost for companies to pay tax, as well as create legal uncertainty.

Another problem with the model used today is the creation of economic distortions. With the spread of tax benefits and special regimes, companies can settle in places far from their consumer market or their source of inputs, increasing the logistical cost.

“When we add all these factors together, the effect is a huge loss of potential for Brazil’s GDP. Studies show that we are, on average, 20% poorer than we could be if we didn’t have these distortions,” said Appy.