The lack of consensus on how to make Tax Reform postpones, as it aggravates, a healthy solution for the Brazilian economy. In an interview with UM BRASIL, tax specialist Ana Carolina Monguilod argues that besides the problems generated by the multiplicity of taxes, the tax system does not accompany the advance and interaction of the economy with technologies.

"Today, we spend hours and hours - we've been doing this for the last few decades - debating what software is. Is it a commodity, is it a service, is it a right? And how do we qualify it for taxation purposes? If we think about the digital economy, it is inevitable that our tax system will become more and more archaic and these terrible debates will become more intense. I usually say that we have reached a moment where it is a lose-lose game. The IRS and the government lose because they are not sure what they are going to collect. The taxpayer loses because he doesn't know how he should pay the taxes. In short, the country loses."

The specialist recalls that the last and only major tax reform took place in 1965 and that, despite numerous changes in the economy, the tax matrix remained the same. "We have exactly the same tax system, but the economy has changed completely. We had an economy extremely focused on industry and, gradually, the service sector gained importance within our Gross Domestic Product (GDP)," she says.

This "inheritance" means that Brazil has four main indirect taxes that fall upon the consumption of goods and services: the Social Integration Program (PIS) and the Contribution for the Financing of Social Security (Cofins), which are federal; the Tax on the Circulation of Goods and Services (ICMS), state; and the Service Tax (ISS), municipal.

Ana Carolina emphasizes that this multiplicity of taxes generates distortions in the economy, such as the tax war caused by the ICMS, besides consuming excessive time from companies and increasing the risk of error, assessment and insecurity. According to the World Bank's Doing Business 2018 report, medium-sized Brazilian companies spend an average of 1,958 hours per year to calculate and pay taxes. The survey analyzes these and other issues in 190 countries.

"A big point of concern for entrepreneurs is the large volume and overlapping of accessory obligations with regard to the Federation, states, and municipalities. Many times the same company has to inform several times the same things to different entities. The tax authorities should embrace this mission because what matters is to receive this information once. The simple fact of having so many taxes also generates a lot of confusion when it comes to companies collecting their own taxes. The state ICMS has different legislations in certain states and the PIS and Cofins have brought an immense complexity to our tax system by changing the regime to non-cumulative.

The tax specialist believes that the resolution would be for the country to work on two fronts: analyze the unification of taxes and rationalize tax obligations. "The political game is much more complex nowadays, which makes an effective Tax Reform difficult, but the government should do everything at the same time now. We have to think of a broad and disruptive reform that takes our tax system to a new level."

The lack of consensus on how to make Tax Reform and society's misinformation on the subject hinder the progress of already existing proposals. "People think that Tax Reform has to reduce the tax burden. No. They are two completely different things because the reform will have the function of rationalizing the system we have. Transform it into something simpler, safer and more efficient so that it does not hinder the business and the decisions of entrepreneurs. The tax burden is another thing, it is a function of the size of the State we have, of spending. I cannot, by a magic trick, reduce the tax burden overnight and create a huge public deficit. In fact, this load is made to cover the size of the State we have, and we will only be able to reduce it when we rethink spending. So a load reduction in the future will not come from the tax system itself. It will come from a reformulation of the State, of our spending," says the lawyer.

Ana Carolina also points out that Brazilian taxation is not the adequate instrument to achieve social justice and emphasizes the need to rethink the size of the State with the justification that this way social justice would be done in a transparent way. "We shouldn't do social justice on the revenue side, on the collection side of the tax system. We should do social justice, above all, on the expenditure side. This way it is possible to measure more clearly the effect of the social benefits and to know if the money is reaching those who should receive it," he says.

"You can't want a European welfare state with all the benefits in the world without taxes. Either we have a leaner and more efficient State, and this would allow a lower tax burden, or we have a huge State full of frills, which will necessarily have a large tax burden," he points out.