Tax advantages resist cut promises and grow 16%

The Union will spend this year R$ 367 billion on tax advantages granted to certain groups without proven counterparts for society.

The assessment is from Unafisco (National Association of Tax Auditors of the Federal Revenue) and points to the highest value since the survey began to be carried out, in 2020.

The nominal increase of 16% is observed after ineffective moves by the government and Congress on the subject. The accounts include both benefits provided for by law, such as subsidies to the automobile industry, as well as omissions by the government in the taxation of items considered important by the entity, such as taxation of the wealth of the richest.

At the top of the “privilegiometer” list, as the entity calls it, is the exemption for profits and dividends that shareholders receive from companies — which has existed for more than 25 years. This item alone will stop inserting BRL 58.9 billion in public coffers in 2022.

The government even included taxation on dividends in the project that altered the Income Tax to fund Auxílio Brasil — even receiving support from the opposition in the Chamber of Deputies.

However, the project ended up being blocked in the Senate after several resistances, such as that of businessmen who saw an increase in the tax burden.

Mauro Silva, president of Unafisco, says that the political class’s fear of displeasing certain sectors means that the numbers remain untouched.

“The Executive cannot handle this by itself, because it needs the Legislature. This makes the cut have a very high political complexity, similar to a tax reform”, says Silva.

He says the debate needs to be faced by presidential candidates, although he is skeptical of short-term reductions.

“This issue will probably appear in the programs of all candidates, as well as the tax reform. But, as it is something that divides and bothers, none of them will take it forward in the first term”, says Silva.

The entity’s list places in second place in the ranking the non-imposition of the tax on large fortunes – which would yield R$ 57.9 billion. Unafisco argues that the Constitution authorizes the creation of the tax, which has not yet been enacted by law.

The government’s position on this and other items of the “privilegiometer” differs from Unafisco’s assessment. Regarding the tax on large fortunes, President Jair Bolsonaro (PL) and Minister Paulo Guedes (Economy) say that the measure would scare away the richest in the country.

“Some want me to tax large fortunes in Brazil. It is a crime now to be rich in Brazil. France, a few decades ago, did this, and the capital went to Russia,” the president said in August.

“What happened in Venezuela will happen in ten minutes. The most affluent are leaving, they are all in Miami,” Guedes said in July.

Despite the differences, the minister preaches the reduction of the general value of tax expenditures since the beginning of the government.

“Is the political class already mature enough to assume the leading role, to take command of the Union Budget, vote more for health and education? It may even be more than it is today, but where does it cut? said at the inauguration, in 2019.

Guedes even presented legal proposals to reduce the total amount of tax expenditure, but the measures were barred, dehydrated or are parked – in part of the cases with the support of the government itself.

The Executive has even taken measures in the opposite direction, such as when discussing a new fuel subsidy.

In the first year of its mandate, for example, the Executive included in the proposed Budgetary Guidelines Law the provision of sending to Congress a plan to review tax benefits, with an annual cut equivalent to 0.5% of GDP (Gross Domestic Product ) until 2022.

The passage was revoked by a later law passed by congressmen and sanctioned by Bolsonaro.

Last year, the government inserted in the Emergency PEC (Proposed Amendment to the Constitution), approved in March, a forecast to gradually reduce tax expenditures over ten years.

However, the final version, intensively negotiated with Congress, ended up prohibiting cuts in half of the benefits, such as Simples, the Manaus Free Trade Zone, the basic food basket and non-profit entities linked to parties.

The text only determined that the government send the plan to Congress, leaving room for the cuts not to be implemented. The enacted amendment gave the Executive six months to deliver the bill proposing the cuts, and the government used practically the entire deadline for submission.

The government ended up presenting a project considered modest. For 2022, the first year of validity, the impact would be approximately BRL 15 billion, equivalent to 10% of tax expenditures after subtracting the exceptions.

The value would reach R$ 22 billion in the following years through the non-renewal of some benefits that exist today. The proposal awaits the opinion of the rapporteur in the Finance and Taxation Committee of the Chamber.

Guilherme Quintanilha, tax lawyer and visiting professor at FGV (Fundação Getulio Vargas), argues that subsidies are necessary in the face of deficiencies in the country that discourage private investment.

“I can not understand [as medidas elencadas] as a privilege. Would an industry settle in Manaus if it weren’t for the Free Trade Zone?”, he asks.

“Unafisco is considering as a premise that we are a Europe. But here we have serious problems of infrastructure, to dispose of the production, with different legislation in each state or municipality and legal uncertainty”, says Quintanilha.

For him, the cut in subsidies needs to be analyzed in a broader discussion, including to debate the effects to be caused by any changes. “The government knows that when it withdraws these investments, it will discourage them. So you need a structural reform”, he says.