Brazil’s byzantine tax system is a huge impediment to business in the country.
A recent World Bank report said it took a typical company 2,600 hours a year to pay its taxes – the worst of 177 countries surveyed. In Ireland it took 76 hours.
Big companies employ armies of lawyers to guide them through the maze of regulations. But faced with such complexity, many small businesses go under or drift into “informality” – a euphemism for tax evasion.
As well as labour taxes and welfare contributions, companies must deal with state sales taxes – governed in Brazil’s 27 states by 27 different sets of legislation – and a host of other municipal, state and federal taxes on sales, profits and payroll.
Brazil’s tax burden has risen to about 37 per cent of gross domestic product, as high as that of many developed countries, but without their quality of services.
Reform has been promised since Luiz Inácio Lula da Silva became president in 2003. But it now has an extra incentive: in December, the government suffered a blow when the Senate rejected a bill to perpetuate the CPMF, a tax on financial transactions that would have been worth about R$40bn ($23.4bn, €16bn, £12bn) this year.
The current system relies on sales taxes hidden at the point of sale, so the poor will pay proportionately more of their income than the rich.
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