Single PIS/Cofins
Ideally, the government's goal of unifying the two contributions should be revised in order to pave the way for a tax reform that effectively reduces bureaucracy in the fiscal structure.
The PIS and Cofins taxes may be altered again as part of what Dilma Rousseff has been labeling a piecemeal tax reform. The government likely feels it cannot implement a comprehensive project at this time and is therefore considering merging the two contributions to simplify the tax structure. This merger could be accompanied by a wider range of inputs that can be credited when calculating the tax payable.
Clearly, merging two taxes into one and reducing credit restrictions would simplify the routine for both businesses and the tax authorities. Calculating and paying a single PIS/Cofins tax would require fewer forms, documents, and declarations from companies. For the Federal Revenue Service, expanding the range of eligible inputs for tax credits would make auditing easier.
It should be noted that the ideal scenario would be for society to deepen the debate on tax reform, and from there develop a comprehensive, innovative, convergent project aligned with the real needs of the country—guidelines that the projects presented by governments in the last 20 years have failed to meet. Orthodox, poor-quality proposals prevailed, along the lines of what former Senator Roberto Campos called "improving the obsolete," and these did not move forward due to disagreements that arose among the agents involved in the process.
Everything indicates that President Dilma Rousseff will act selectively on the tax issue until a comprehensive proposal is possible. If this is the approach the government intends to take, ideally the goal of unifying PIS/Cofins should be reviewed in order to pave the way for a tax reform that effectively streamlines the fiscal structure, reduces administrative costs, minimizes the individual tax burden, combats evasion, and eliminates self-declaration taxes.
The proposed PIS/Cofins tax is a timid measure given the magnitude of the country's tax problems. This is one of the most complex and costly taxes for taxpayers. If the unification based on value added is maintained, companies will continue to have to submit information to calculate the amount to be collected, and the expansion of inputs subject to credit will increase the already high rate of 9,25% for both contributions. This will encourage tax evasion, precisely one of the main anomalies that tax reform should address.
An alternative to the single PIS/Cofins tax on added value, a restricted and self-reported basis, would be financial transactions carried out in banks, a universal and automatic basis, which would allow for a contribution with a rate of only 0,9%. The paraphernalia of forms, declarations, and documents would be eliminated, and the administrative cost of this tax for companies would be zeroed.
A tax on financial transactions, as a replacement for PIS/Cofins, could be the embryo of a broader tax reform further down the line. Other complex and costly taxes, such as these two contributions, could be gradually replaced by this type of tax, which is characterized by being simple, inexpensive, and immune to evasion.
Marcos Cintra holds a PhD in Economics from Harvard University (USA), full professor and vice president of Fundação Getulio Vargas