MBE single tax

Recently, the Efficient Brazil Movement (MBE), an organization that brings together business entities, launched a campaign to collect 1,5 million signatures to propose a simplified tax reform to the National Congress. The organization wants to create a single tax that encompasses PIS, Cofins, Cide, CSLL, ICMS, and payroll taxes.

According to MBE, its single tax simplifies the Brazilian tax system. In this, the organization is correct, since replacing half a dozen taxes with just one implies a slightly simpler routine for businesses and the government. The country has one of the most complex tax structures in the world, and MBE's proposal would provide a slight reduction in administrative costs for the productive sector and the public sector.

The main criticism of the MBE project involves the basis the entity chose to absorb the taxes that would be eliminated. Its single tax would be levied on added value, perpetuating the predominance of self-assessment taxes and maintaining fertile ground for tax evasion.

The tax reform that Brazil needs will not be achieved with the MBE project. Besides being simple, the tax system must provide a significant reduction in bureaucratic and administrative costs for both taxpayers and the government, combat corruption, and render tax evasion dangerously useless.

In the National Congress, there is an alternative that could form the basis for resuming tax reform. It would reduce the individual tax burden on current taxpayers and business administrative costs, combat tax evasion, and simplify the bureaucratic tax structure. It would make those who overpay taxes pay less, such as formal businesses and salaried workers, and obligate delinquents, illegal and informal workers to bear the difference. This is the notion of tax equity that Brazil desires. The project in question is PEC 474/01, which creates the Tax on Financial Transactions (IMF) with a rate of 2,14% on the debit and credit of each transaction in a bank current account. With it, taxes such as Personal and Corporate Income Tax, COFINS, IPI, CSLL, Education Salary, employer's INSS, and others would be eliminated. This proposal was already unanimously approved in December 2002 by the Special Committee on Tax Reform of the Chamber of Deputies and could be voted on by the Plenary of that House.

The MBE's campaign in defense of its project has merit in reviving the debate on tax reform and adopting part of the IMF's philosophy, but it errs in involving few taxes in the unification process and in wanting to maintain a system where tax evaders will continue to defraud the tax authorities. PEC 474/01 contemplates replacing practically all federal taxes and proposes financial transactions as the basis for taxation, which would make tax collection automatic, with everyone, including those who evade taxes, paying their share.