One source of news, a very well known one at that (“Jota”) calls the present State VAT judgment by Brazilian Supreme Court as the “Judgment of the Decade”. For the uninitiated in the Brazilian tax perversities, let me give you the background:
· ICMS = State Value Added Tax – also being calculated over “some services” like electricity, water and sewage and phone bills – at spectacular rates of no less than 25%;
· PIS and Cofins – Are “twin taxes” (levied at state and federal level respectively).
· States, taking advantage of their relatively loose interpretation of the constitution, some years ago started to collect ICMS over the PIS and Cofins, already charged in the Invoices.
My utilities bills are, in an average, increased by “tax on tax” collections by 2.68% (some 29% of ICMS over the already applied 9.25% of PIS and Cofins.
Sound ridiculous everywhere in the civilized world. Should sound ridiculous to Brazilian ears too. It doesn`t. We Brazilians are a complacent race, that left the governments of all levels gloated on us in the last decade and a half. The concept of tax justice, as I said in another article, was thrown out of the windows by the people who say that cherish it most – the left.
Let me give you an example of one of my actual electricity bills, from Copel (Paraná State grid company):
From a total of electricity (Energy, Distribution and Transmission fees) of R$ 241.80, the basis of calculation of ICMS all of a sudden shows up as R$ 408.46. Tax over tax. And worse, ICMS over its own basis of calculation.
Therefore, even the ICMS itself is not only 29% but 29%^(29%) (or 1,29 elevated to 1,29), which is astounding 38.89% actual ICMS rate.
We can easily calculate that the total ICMS over my electricity bill is R$ 118.45 over R$ 241,80, or a grand total of 48.99%. Besides this, another R$ 48.25 (or 19.95% of PIS, Cofins and the electricity taxes (some 3 or 4 other smaller taxes)
All things considered, taxes on my electricity bill are then of 68.95%. More taxes than actual electricity!
In my last article I tried to convey the heavy burden of taxation on the common citizen, instead than over profits, assets or any other basis of calculation. The actual example you see above repeats to almost anything, from water to gasoline, to a T-shirt or even the day to day rice and beans of the Brazilians.
Let`s get back to the meat of the problem at hand – if Supreme Court declares the taxpayer as winner in this war, this will represent an impact of R$ 250 billion to the public treasury. This is almost 2 times higher than the budgeted public deficit of 2017 (already an astonishing number, for Brazil). This has been in the courts since the 90`s and therefore the problem is getting bigger by the year,
You give the money (not due) to spendthrift government, and the politicians immediately create “reasons to spend” (either legal or illegal, as the Car Wash Operation has exposed to the world). The result is that Supreme Court is hard-pressed to deny the taxpayer its constitutional right of now being plundered by its own government.
Let’s see what is more important to the Supreme Court – justice or the well being of the politicians.
Wesley Montechiari Figueira
Managing Partner at Russell Bedford Brasil | Valuconcept