ECONOMICS, BUSINESS AND THE LAW - EFFECTS AND IMPACTS TAXATION OF DIGITAL TRANSACTIONS: A COMPREHENSIVE AND WORRYING ANALYSIS We have been warning and commenting on the increase in the tax burden in Brazil for a long time. All to cover the hole in the public accounts and the consequent increase in the public deficit. Below is some information on the current Brazilian public deficit.
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In 2023, the Brazilian government closed its accounts with a historic deficit of R$ 230 billion (...) This is the worst result since 2020, the year the Covid pandemic began (JORNAL NACIONAL, 2024)[1].
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The primary result of the consolidated public sector was a R$1.2 billion surplus in March [2024], compared to a R$14.2 billion deficit in the same month of 2023 (...) In twelve months, the consolidated public sector accumulated a deficit of R$ 252.9 billion, equivalent to 2.29% of GDP (...)[2].
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Consolidated public sector debt rose by 0.4 percentage points of GDP, from 75.1% of GDP in January 2024 to 75.5% of GDP in February - the equivalent of R$ 8.3 trillion[3].
Please note that these figures are the most recent available and may have already changed. For the most up-to-date information, I recommend checking official government websites or financial institutions. Furthermore, we have:
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The Brazilian government is looking for solutions to reverse the deficit scenario in 2024 (JORNAL NACIONAL, 2024).
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The bill for the Budgetary Guidelines Law (LDO) foresees deficits until at least 2024, totaling 11 consecutive years of negative results. The text projects a deficit of R$ 27.89 billion in 2024 and a primary surplus of R$ 33.7 billion in 2025[4].
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(...) the market and the Ministry of Finance itself project a rise in the ratio of public debt to GDP over the next few years. In order to achieve the adjustment, the government has indicated in its new fiscal framework plans to bring the primary deficit to zero by 2024 and achieve surpluses in subsequent years[5].
According to Mansueto Almeida, in an article published by Bloomberg Línea[6], "the change in the surplus target for 2025 has left the market with the perception that the government has 'thrown in the towel' on fiscal adjustment." With that background, let's return to the topic under discussion. After several increases in the tax burden, announced at the end of 2023 and beginning of 2024, now comes the taxation of operations carried out through digital means - PIX, DREX and cryptocurrencies. Previously, many criticized the so-called "tax madhouse" because of the number of laws and regulations. Now we are faced with the judicial madhouse, which confronts taxpayers' legal certainty, and the tax madhouse created by the current government. On the subject, see below the article published by Gusson (2024)[7]. Internal Revenue Service 'joins forces' with Central Bank and will use Pix and Drex to collect tax directly on all digital transactions - In addition to the 22.5% tax on Bitcoin and cryptocurrency transactions in Brazil, the Brazilian Internal Revenue Service and the Central Bank are working on a new system for collecting taxes on all digital transactions. The Internal Revenue Service, together with the Central Bank and the Ministry of Finance, are working on a new system to improve tax collection that will be implemented directly in all digital transactions. According to reports, the proposal will be part of the consumer tax reform approved by Constitutional Amendment 132/2023, and the supplementary bill was recently submitted by the Executive Branch. It unifies the ICMS and ISS in the Tax on Goods and Services (IBS) and Social Contribution on Goods and Services (CBS), and provides for taxes from digital transactions to be passed on to the government directly using Pix (and then Drex) at the time of the transaction. "I was at the Central Bank talking to the staff. Pix and Drex are already being programmed with this in mind," said the director of the Ministry of Finance's Tax Reform Secretariat, Daniel Loria. In addition to the proposal to charge 'withheld tax' on digital transactions, the Brazilian government intends to implement significant changes to the taxation of cryptocurrencies. The government's new proposal aims at combating tax evasion and ensuring greater transparency in operations involving digital assets. To this end, the government intends to increase fees for users who hold crypto-assets such as Bitcoin, Ethereum and other digital currencies on exchanges in Brazil. The idea is to "close the loophole" against those who use cryptocurrencies to evade paying Income Tax (IR). There are several countries that impose taxes on digital transactions, according to Martello (2020)[8], including financial transactions and electronic payments. Here they are:
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Argentina: tax on both credit (money going into the account) and debit (going out) transactions, valid until December 2022.
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Bolivia: tax on both credit and debit transactions, valid until December 2023.
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Peru: tax on both credit and debit transactions, valid until December 2021.
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Colombia: tax on transactions, but only on debit .
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Honduras: tax on transactions, but only on debit .
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Dominican Republic: tax on transactions, but only on debit.
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Venezuela: tax on transactions, but only on debit.
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Hungary: tax on transactions, but only on debit.
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Mexico: tax on cash withdrawals to induce banking.
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Pakistan: tax on cash withdrawals to induce banking.
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Sri Lanka: tax on cash withdrawals to induce banking .
In order not to take up too much of the reader's time and to avoid undue innovation, it is worth reproducing the considerations of Prof. Isaías Coelho, during the discussion on the creation of the CPMF (Provisional contribution on financial transactions), found in the same article by Martello (2020). CPMF For Professor Isaías Coelho, author of the survey on taxes on financial transactions in countries, the proposal to restore a tax similar to the old CPMF is "difficult to understand". For him, this would be a tax "of the worst quality, worse than any other tax in Brazil". "The CPMF has a cascading effect, is regressive [proportionally penalizes the poorest] and causes financial disintermediation [payments outside the banking network] and informality [parallel accounts, tax evasion]. There are many studies documenting the harmful effects of the CPMF," he said in an article. Coelho noted that of the countries that currently have taxes on financial transactions, no country is as developed and has a sophisticated capital market as Brazil. "When there was CPMF in Brazil, those with large financial resources were (by law) free of it, since they were sheltered in 'investment accounts' managed by the banks. Those with fewer resources were left out in the rain," he added. Asked recently about the proposal for a tax on digital transactions, the president of the Central Bank, Roberto Campos Neto, said that the Central Bank does not comment on tax matters. At this point in the discussions, the following question arises: What are the arguments for and against taxing digital transactions? There are various arguments for and against taxing digital transactions. Here are some of them, according to Campos Jr. (2020)[9]. Arguments in favor:
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Increased revenue for the Union: Taxing digital transactions could increase revenue for the Union, since the new tax would be federal and not state.
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Recovery of the loss of payroll tax relief: The government intends to tax at 0.2%, with the aim of recovering the loss of payroll tax relief.
Opposing arguments:
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Impact on companies: The taxation of digital transactions could have a negative impact on companies that saw the web as a way to survive in the midst of the pandemic. Many have closed their physical establishments and started selling online.
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Increased business costs: Business costs would increase at a time of crisis, when it is already difficult to maintain a balance between income and expenditure.
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Tax evasion: The creation of such a tax could increase tax evasion, favor the use of cash and, consequently, illegal operations.
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Benefit for large companies: Large companies that work with online sales would benefit, because customers would have fewer options and will end up turning to them when they want to buy an item.
And what would be the alternatives for increasing government revenue without taxing digital transactions? There are several alternatives to increase government revenue without the need to tax digital transactions. Here are some of them (MAGNANI, 2024)[10]:
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Operational efficiency: The automation of repetitive and routine processes in tax administration can reduce the manual workload, reduce errors and speed up the processing of declarations and payments. The integration of tax systems allows for more efficient management of information, avoiding duplication of effort and facilitating the exchange of data between different government departments and agencies. Digitizing documents makes it easier for citizens to pay their taxes.
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Broadening the tax base: Simplifying the process of registering new taxpayers and filing tax returns encourages the formalization of companies and individuals, broadening the tax base. Integration with applications for selling products and services can increase formalization and the number of traceable CNPJs.
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Transparency and data security: The government can strengthen its relationship with taxpayers through greater transparency and efficient interaction. This can be achieved through efficient resource management and governance.
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Use of technology for collection (TERRA BRASIL NOTÍCIAS, 2024)[11].The Federal Revenue Service is developing a new system for collecting taxes on all digital transactions, which will be integrated directly into all digital transactions. This new system aims at improving tax collection.
With this idea of taxation, one of the main questions for debate arises: What is the criterion for adapting the tax burden to the application of resources in services and benefits for society in general, such as health, transportation, public safety, among others? We know that the criterion of matching the tax burden with the application of resources in services and benefits for society in general is a complex issue and involves various principles and considerations. Here are some important points, according to Hack (2014)[12]:
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Principle of Contributory Capacity: This principle determines that the burden of taxation should be distributed according to each individual's ability to contribute, preventing taxation from being equal in value. In other words, today's egalitarian taxation is one in which each citizen pays according to their capacity.
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Preservation of the Existential Minimum: This principle prevents taxation when there is no capacity to pay. In other words, people must be guaranteed the minimum for their subsistence before being taxed.
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Prohibition of Confiscation: This principle prohibits excessive taxation that exhausts the taxpayer's capacity to pay. This means that taxes cannot be so high as to confiscate the taxpayer's property or income.
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Criteria for distributing the tax burden: There are two criteria for distributing the tax burden: proportionality and selectivity. Proportionality applies to taxes levied on income and assets, while selectivity applies to taxes levied on consumption.
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Application of Resources: Tax revenue must be sufficient to meet the need for adequate resources to finance the public expenditures and services provided for in the budgets of public entities. This means that the taxes collected must be used to provide services and benefits to society in general (Santos; SANTANA, 2023)[13].
Here's some information about the tax burden and the benefits it brings to society, such as health, transportation, public safety and other public services:
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The tax burden in Brazil is one of the highest in the world. In 2021, the Internal Revenue Service [14] released a study on the country's tax burden.
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However, Brazil has the worst tax return to society among the 30 countries with the highest tax burden, according to a study by the Brazilian Institute of Tax Planning (IBPT) (COMUNICAÇÃO MILLENIUM)[15]. The study considered each country's tax burden (collection in relation to GDP) and the Human Development Index (HDI), which measures the degree of development in relation to education, health and income in a given region.
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The study developed an index called IRBES (Index of Return of Welfare to Society), which is the sum of the numerical value of the country's tax burden, weighted at 15%, and the HDI value, weighted at 85%. The higher the index value, the better the return on tax collection for the population.
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According to the study, Brazil has an IRBES of 139.19, while the country in first place, Ireland, has an index of 169.43.
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Brazil has a tax burden of 35.21% and an HDI of 0.761, according to an IBPT survey.
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The Fiscal Policy Observatory has released new figures for the gross tax burden (GTR) for 2023. The GTR in 2023 reached 32.44% of GDP, a drop of 0.64 percentage points compared to 2023, when the GTR reached 33.07% of GDP, the highest level since 2011. The highest value in the historical series is still 2007, when GTR reached 33.64% of GDP.
[1] JORNAL NACIONAL. Governo brasileiro fecha contas de 2023 com déficit histórico de R$ 230 bilhões. 29 Jan 2024. Available at: https://g1.globo.com/jornal-nacional/noticia/2024/01/29/governo-brasileiro-fecha-contas-de-2023-com-deficit-historico-de-r-230-bilhoes.ghtml [2] BANCO CENTRAL DO BRASIL. Press release. 06 May 2024. Available at: https://www.bcb.gov.br/estatisticas/estatisticasfiscais [3] SINDIVAPA. Contas públicas têm déficit recorde de R$ 48,7 bilhões para fevereiro e dívida sobe para 75,5% do PIB, maior nível em um ano e meio. Available at: https://www.sindivapa.com.br/contas-publicas-tem-deficit-recorde-de-r-48-7-bilhoes-para-fevereiro-e-divida-sobe-para-75-5-do-pib-maior-nivel-em-um-ano-e-meio-3226 [4] AGÊNCIA BRASIL. Governo estima déficit primário de R$ 65,91 bi em 2023. 14 April 2022. Available at: https://agenciabrasil.ebc.com.br/economia/noticia/2022-04/governo-estima-deficit-primario-de-r-6591-bi-em-2023. [5] CNN BRASIL. Andando em círculos, Brasil vai repetir déficit fiscal de 40 anos atrás, diz estudo. 30 Nov 2023. Available at: https://www.cnnbrasil.com.br/economia/andando-em-circulos-brasil-vai-repetir-deficit-fiscal-de-40-anos-atras-diz-estudo/#:~:text=No%20campo%20fiscal%2C%20o%20mercado,alcan%C3%A7ar%20super%C3%A1vits%20nos%20anos%20subsequentes. 6 LEONEL, Josué. Para o mercado, governo ‘jogou a toalha’ sobre ajuste fiscal, diz Mansueto. Bloomberg Línea, 18 April 2024. Available at: https://www.bloomberglinea.com.br/mercados/para-o-mercado-governo-jogou-a-toalha-sobre-ajuste-fiscal-diz-mansueto/ [7] GUSSON, Cassio. Receita Federal se 'une' com Banco Central e vai usar Pix e Drex para cobrar imposto direto em todas as transações digitais. Cointelegraph, 09 May 2024. Available at: https://br.cointelegraph.com/news/federal-revenue-joins-with-the-central-bank-and-will-use-pix-and-drex-to-charge-direct-tax-on-all-digital-transactions [8] MARTELLO, Alexandro. Onze países tributal transação financeira, diz estudo; Guedes quer taxar ‘pagamento eletrônico’. G1, 25 jul. 2020. Available at: https://g1.globo.com/economia/noticia/2020/07/25/onze-paises-tributam-transacao-financeira-diz-estudo-guedes-quer-taxar-pagamento-eletronico.ghtml [9] CAMPOS JR., Ricardo. Os prós e os contras da criação de um imposto sobre operações digitais. Correio do Estado, 10 ago. 2020. Available at: Os prós e os contras da criação de um imposto sobre operações digitais - Correio do Estado [10] MAGNANI, Vitor. Como governo pode usar a tecnologia para arrecadar mais com menos impostos. UOL, 23 jan. 2024. Available at: https://economia.uol.com.br/mais/colunas/2024/01/23/aumento-de-arredacao-e-governo-digital-mais-tecnologia-e-menos-impostos.htm [11] TERRA BRASIL NOTÍCIAS. Receita Federal vai usar Pix para cobrar imposto direto em todas as transações digitais; entenda, 12 May 2024. Available at: https://terrabrasilisnoticias.com/2024/05/receita-federal-vai-usar-pix-para-cobrar-imposto-direto-em-transacoes-digitais-entenda/ [12] HACK, Érico. Princípio da capacidade contributiva: limites e critérios para o tributo. Rev. SJRJ, Rio de Janeiro, v. 21, n. 39, p. 83-94, April 2014.
[13] SANTOS, André Luís Gregório dos; SANTANA, Magno Azevedo. Complexidade, efeitos e propostas. Ciências Sociais, v. 27, ed. 121, April 2023.
[14] RECEITA FEDERAL. Carga tributária no Brasil 2021: análise por tributos e bases de incidência. Brasília: Ministério da Economia, 2021.
[15] COMUNICAÇÃO MILLENIUM. Brasil tem o pior retorno de impostos à sociedade, segundo estudo.; veja ranking. 05 April 2021. Available at: https://institutomillenium.org.br/brasil-tem-o-pior-rretorno-de-impostos-a-sociedade-segundo-estudo-veja-ranking/