Originally published in the July 14 edition of World Tax Daily (Copyrights Tax Analysts)
Brazilian newspapers have been announcing the imminent dismissal of Lina Maria Vieira, chief commissioner of the Federal Revenue Department (FRD), by Finance Minister Guido Mantega.
Among the reported reasons for the dismissal are continuous reductions in tax revenues in the past few months; a controversy over the revocation of tax setoffs initiated by Vieira against state-owned oil company Petrobras; and delays in concluding an internal merger between the FRD and the Social Security Revenue Department.
The candidates for new FRD chief commissioner include Nelson Machado, a former social security minister who recently has been assisting Vieira. Her dismissal is expected to be made public in the next few days.
- The State of Brazil’s Tax Revenue
Brazil’s overall tax burden reached 35.8 percent of the country’s GDP in 2008, a record since the FRD started using the current criteria in 1995. The figure, which amounts to BRL 1.03 trillion (approximately $500 billion), was released by the FRD on July 7.
The tax burden includes federal, state, and municipal taxes and social security payments. It represents an increase of 1.1 percentage points over the overall 2007 tax burden of 34.7 percent. Looking at the year preceding President Luiz Inácio Lula da Silva’s first year in office — 2002 — Brazil’s overall tax burden went from 32 percent to 35.8 percent of GDP in only six years.
What amazes not only tax experts but also Brazilian society is that 2008 was the first year without the 0.38 percent bank transactions tax (CPMF), which accounted for more than BRL 20 billion in annual tax revenues before expiring on December 31, 2007. Before the CPMF expired, the government tried to convince Congress that the country’s finances could collapse and that important social programs and other essential public services would be jeopardized if the tax were not extended. Not only did the predicted catastrophe fail to materialize, events showed that the loss of the CPMF did not have any real impact on tax revenues.
Federal taxes in 2008, including social security, represented 60 percent of the overall tax burden (and 24.94 percent of Brazil’s GDP), while states and municipalities were responsible for 24 percent and 16 percent of the tax burden, respectively (9.23 percent and 1.64 percent, respectively, of the GDP).
Marcelo Lettieri, the FRD’s coordinator general of studies, forecast and analysis, acknowledged that Brazil’s tax burden is very high as compared with the level of development. He argued, however, that high taxation is necessary to finance Brazil’s financial and fiscal needs and that the tax burden should be at a different level in 2009.
Because of the international financial crisis, the government waived more than BRL 11 billion in tax revenue in the first six months of 2009 as the economy as a whole slowed down.
David Roberto R. Soares da Silva