Tax exclusive and “off shore” funds

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By PAULO KLIASS*

Brazilian elites created a big lie about the supposed “high tax burden”

The Brazilian ruling classes have never liked to offer any type of contribution to the construction of a future for the country in which they amassed their fortunes. One could argue that this is not a particular characteristic of the wealthy in this corner of the planet. But the fact is that such class irresponsibility, with such a refusal to offer any contribution to the public fund, does not usually happen elsewhere.

Brazilian elites created a big lie about the supposed “high tax burden”. But this factious myth created its own and had the important support of “experts” in defending the interests of capital in the mass media and in other spaces for the formation of public opinion. For these people, it doesn't matter that this fact is not true and that the information from the Organization for Economic Co-operation and Development (OECD) itself prove the contrary.

The strategy is always to criticize the presence of the State in the economy and repeat the liberal mantra against paying taxes to exhaustion. After all, if the objective is to reach even the minimum size of the public sector, there is really no reason for the government to have its own resources. Thus, liberalism taken to its extreme radicality approaches a variant of anarcho-libertarianism.

False liberalism to not pay taxes

The debate surrounding Tax Reform revealed the specific nature of our tax system. It is marked by what scholars on the subject classify as high regressiveness. This means that the base sectors of our pyramid of inequality pay, proportionally, much more taxes than the selected portions at the top of the figure. As our model prioritizes the taxation of consumption and not income or assets, capital and wealth holders only pay for what they consume and not for what they own and accumulate.

The organized resistance that they are now rehearsing against the proposals of taxation of exclusive funds and funds kept abroad (off-shore) reflects well the absolute lack of commitment of the ruling classes towards the vast majority of society. After all, the greatest absurdity is not that the Lula government sent these measures. The scandal is that even today, in mid-2023, this type of financial application is still exempt from any type of taxation. That's because here, in the best global paradise of finance, there is nothing that can provoke any kind of opposition to parasitic capital. It is the environment of stratospheric interest rates and the absence of taxation. It is a perfect combo to obtain high profitability in financial investments.

Exemption from profits and dividends, large fortunes and other bad things

But the examples of this kind of benefit do not stop there. Our Constitution was approved in 1988. The text includes a provision that determines the implementation of a tax on large fortunes.

(…) “Art. 153. The Union is responsible for imposing taxes on: … VII – large fortunes, in accordance with complementary law”.

This means that for 35 years the National Congress has never been guided to vote on any supplementary law dealing with the subject. The powerful “lobby” has been quite competent in preventing this and other related issues from being considered and debated by society and the legislative branch. Among the arguments used, there is always the threat of capital flight and the rhetoric that being a billionaire is not a sin. It would be comical if it were not tragic. All this is mixed in the indigestible broth of the exacerbation of entrepreneurship as the great panacea for the “ills of the country”. And that's it: we see unusual scenes, where low-income sectors join the dominant classes to denounce the State's heavy hand against free enterprise.

Another department in which the will of big capital reigns freely, freely and freely, is the Administrative Council of Tax Appeals (Carf). This collegiate decides on pending billion-dollar unpaid tax debts and was until recently in the spotlight due to changes made in the Jair Bolsonaro/Paulo Guedes administration to further benefit bad tax payers. Along with this tendency to favor big capital, the Ministry of Finance also usually offers tax debt refinancing programs (Refis).

This practice has become an annual routine and points to a penalty for those who correctly pay their obligations to the tax authorities. After all, in the business world there is a joke that the good taxpayer would be the fool in the story, as it turns out that it is better to evade and then benefit through a program that forgives fines and pays obligations in installments over a period of up to 15 years. .

On the other hand, since 1995 Brazil has kept amounts received as profits and dividends unattainable by the tax authorities. Crazy! The measure was introduced in the first year of FHC's first term and was never changed again. 14 years of PT's presence in the federal government have passed and nothing has been done about it either. To correct this excrescence, a simple Provisional Measure or an Ordinary Bill to be sent to the National Congress would be enough. There are hundreds of billions of reais distributed annually by companies to their owners and/or shareholders who are left out of the taxation to which the majority of formally registered employees and public servants are compulsorily subjected.

The incidence of income tax on individuals also reflects the inequality in the treatment of the tax issue. In the Brazilian case, the maximum rate is 27,5% for those who receive a little more than R$ 4.000 per month. For our tax system, from that income range everyone should be considered "rich". People can receive R$5.000 or R$300.000 and the rate will be the same. In the capitalist countries considered more developed, the highest income ranges can be affected by rates above 50%.

Tax exclusive and “off shore” funds

But the current cry from Faria Lima's people is against the proposal that the government put forward regulating financial investments in so-called exclusive funds and funds based abroad. This is the Provisional Measure 1.171 / 23, which contained the minimum wage adjustment and also the funds. The contrary reaction of the elites was immediately verbalized by the president of the Chamber of Deputies, Artur Lira. The government backed down and agreed to present this second part in specific text, the PL 4.173 / 23.

According to estimates from the economic area itself, the prospects for tax collection with the measure are not that high. There is talk of something like R$ 7 billion for the 2024 financial year. But it is, above all, about seeking legalization and transparency of these values ​​on the part of their holders. The Ministry of Finance estimates that the total stock of investments by Brazilian investors in such assets exceeds R$1 trillion. Nothing is more natural than the government obliging their owners to declare the amounts and pay taxes as if they were financial income obtained from investments in domestic financial assets.

The same newspapers that demand rigid fiscal austerity and condemn any attempt to make the suicidal target of zeroing the primary deficit in 2024 more flexible are now denouncing the government's alleged fundraising madness (sic) with such measures. They rage against adjustments in the minimum wage and demand to remove the minimum minimum wage for health and education from the Constitution, but refuse to collect taxes on resources clandestinely left from Brazil. There is a lack of commitment and a sense of social solidarity.

It is past time for our elites to abandon the vulture posture they have always held over the rest of the country. The strategy of exploiting the environment with a very short-term perspective, of plundering the lives of the majority of the population with dwindling wages and social benefits and evading the payment of taxes must undergo an urgent change. There are numerous measures that the government must and can quickly implement to correct such distortions, but taxation of exclusive funds and so-called “off shore” funds is a good start.

* Paulo Kliass holds a doctorate in economics from UFR, Sciences Économiques, Université de Paris X (Nanterre) and member of the career of Specialists in Public Policy and Governmental Management of the federal government.


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