Teoría de la equivalencia de las condiciones o conditio sine qua non.

A first-time analyst of the literature on tax reform in Brazil would come to a curious conclusion: that the bulk of the controversy surrounding the subject, which dates back to the mid-1990s, focuses almost exclusively on doing away with cascading, or turnover taxes.121

In fact, in August 2001, representatives of Brazil’s major business associations published a manifesto demanding an urgent tax reform.122 A close look at the document, however, shows that the true goal of business leaders was neither to discuss the tax issue as a whole – its malfunction and dysfunction – nor to seek comprehensive and definitive solutions to the problem. Rather, it was a severe criticism of cumulativeness present in some of the taxes in use in the country. Those entrepreneurial groups convinced important public opinion leaders that the top priority in tax reform should be nothing more that the elimination of turnover, cascading taxes.

One indicator of their mistake can be gauged in the results of a survey taken by

121 _{A tax is considered cumulative if applied on a same tax base in two or more stages during the}

production and exchange process, as when the amount collected in the earlier stages of production, or exchange, are not allowed to be deducted from the tax due on the next stage. Examples of such taxes in Brazil are the ISS (a municipal tax on services), the CPMF [Provisional Contribution on Bank Transactions], and partially the Cofins [Contribution for Funding Social Security], and the PIS [Social Integration Program]. A tax is not cumulative whenever the tax amount paid in one stage of circulation is deducted from the amount due on the following stage. Examples of non-cumulative taxes in Brazil are the IPI [Tax on Industrialized Products] and the ICMS [Tax on the Circulation of Goods, Transportation, and Communication Services]. Everardo Maciel (a former head of the Federal Revenue Service in Brazil) defines cumulativeness as typical of “tax systems the incidence of which have no repercussions either forward or backward... The value-added tax system...considers backward and forward data; it has a system of debits and credits. Which of these is best? Both have virtues and shortcomings. In cumulative systems, rates are lower. In value-added systems, rates are higher. Cumulative systems are simple. Value-added systems are more complex and lend themselves to tax avoidance and fraud... Value-added systems provide better accounting practices than cumulative systems. The mistake is to be partisan to one or the other. Each situation has an appropriate solution. Generalization is a huge mistake. Therefore, the cumulativeness of a system

does not constitute an error in principle.” [MACIEL, 2001]

the National Confederation of Industry, in which 88% of business leaders surveyed pointed to Brazil’s excessive tax burden as the least desirable feature of the current tax system, and not to the presence of turnover taxes. Thus, it is surprising that business leaders have aimed their anger at cumulativeness, instead of arguing for a reduced tax burden and for lower tax rates.

The manifesto contained no demands for fighting tax evasion and corruption. Nor did it call for actions to decrease the high compliance costs related to accessory tax obligations imposed on taxpayers. It did not even complain about bureaucracy or about the inequities of Brazil’s current tax system.123 The manifesto complained almost exclusively of cumulativeness, despite the fact that what truly suffocates competitiveness in Brazil is not the manner in which taxes are collected (cumulatively or on value-added), but rather the disproportionate weight of Brazil’s tax burden, in excess of 34.8% of GDP in 2007. They were discussing form, and forgot the essence of their problem.124

No heed was given to basic problems, such those raised by Everardo Maciel, former Secretary of Federal Revenue who foresaw that “without a doubt, the speed and depth of changes facing the world will affect (or even exhaust) the tax models in use today. Which taxes, then, will continue to exist, or which new ones will be created, are still questions that have no answer.”125

Tax evasion, not the CPMF, is the tumor that must be rooted out from the national tax system, and no other system, apart from the bank transaction tax, can do just that. As a matter of fact, the CPMF and bank transaction taxes are not problems in Brazil’s tax system; rather, as assumed by the Federal Revenue Service,” Brazil can prove that the use of bank transaction taxes…can be the solution for taxation in an increasingly globalized and electronically dependent world”.126

This text discusses Brazil’s tax system, including its cumulativeness. We demonstrate that a priori rejection of cumulative taxes is the result of prejudice and of poorly digested theoretical concepts. We will also show that it is important to overcome this erroneous and incomplete interpretation of Brazilian tax problems. This is the first step to begin building a more efficient tax model, capable of being

123 _{According to research by SEBRAE/SP (Brazilian System for the Development of Small}

Enterprises) bureaucracy bears down heavily on micro business owners who spend 40% of their time complying to the bureaucratic demands of federal revenue agencies. According to estimates, small businesses in Brazil spend approximately 3% of GDP (US$ 15 billion) in bureaucratic red tape related to taxes

124 _{Discussion of tax reform is ambiguous in Brazil. When we speak of simplification through the}

unification of ICMS state legislation, for example, “people oppose it because, in fact, this that is supposedly desired, which modernizes, which furthers progress, in truth is not desired. That is, we are discussing a false agenda, a hidden agenda… All of the discussions are not truthfully those that are

being discussed.” [MACIEL, 2001].

125 _{[SECRETARIA DA RECEITA FEDERAL, 2001(b)]} 126 _{[SECRETARIA DA RECEITA FEDERAL, 2002(c)] p.38.}

more equitable, less costly, and more consentaneous with Brazilian economic and social structures. Such tax model, as will be demonstrated, is the Single Tax system.127