Survey: Brazil’s Corporate Income Taxation is Among Highest in World

RIO DE JANEIRO, BRAZIL – According to the organization, the nominal tax rate on companies that calculate their taxable income using the “real profit” system for calculating taxes, i.e. book accounting profit less deductions and other adjustments, stands at 34 percent.

This is the worst index in a ranking of 18 countries directly competing with Brazil in the international market, according to an analysis based on KPMG’s Online Tax Rates database, prepared by the industry confederation.

The document further shows that when total taxes and contributions collected by companies are measured as a percentage of profit, Brazil is among the worst ranked.

This proportion is 65.1 percent in Brazil, ahead of Colombia (71.9 percent) and Argentina (106 percent) in the international comparison. From a different perspective, the figure recorded in Brazil is up to three times higher than that recorded for Canada (20.5 percent), the best placed in the ranking.

The figures are based on the World Bank’s Doing Business 2019 report. According to CNI’s executive manager for Economic Policy, Flávio Castelo Branco, this data suggests that approximately two-thirds of Brazilian companies’ profits are transferred to the Treasury.

Castelo Branco argues that high taxation reduces companies’ investment capacity. “This is not good because a large part of investments are made based on the profit that companies are able to set aside to increase their productive capacity,” he said.

The manager of CNI added that since corporate income taxation is higher than in other countries, the attractiveness of foreign investment to Brazil is also reduced.

“In the last decade, a trend of reduced taxation on corporate profits has been observed. More recently, the United States and Argentina have reduced it, and Europe has been in this trend for a long time. This leads us to be late in this process and as a result, we have lost our ability to attract foreign companies here”.

“Or, in the case of companies already operating here, they are unable to make new investments because their parent companies prefer to operate from countries with better tax conditions,” he said, advocating the reduction of corporate income tax in Brazil.

Reforms

According to the CNI, the data reinforce the need for reform of the Brazilian tax system.

The organization advocates priority for tax reform, soon after the approval of changes in the Social Welfare rules. The CNI believes that, in addition to reducing the tax burden, the tax system should pursue simplicity, neutrality, transparency, and equality.

In this first moment, says the CNI, the tax reform should focus on adopting a Value Added Tax (VAT) that allows the elimination of accumulation and simplifies the system.

According to the confederation, due to accumulation, companies cannot offset part of the taxes – or all of them – paid in previous stages of the production process. This renders products manufactured in Brazil more expensive.

In most countries, says the CNI, the six taxes now levied in Brazil on the circulation of goods and services – PIS/Pasep, Cofins, IPI, ICMS, Fuel, and ISS – are replaced by only one, the VAT.

The last major country that still had a VAT different from the global standard was India, which has already enacted a reform measure.

There are currently two proposed amendments to the Constitution in Congress – PEC No. 45 in the Chamber of Deputies and PEC No. 110 in the Senate. The government also intends to submit a tax reform proposal to Congress, which is yet to be detailed.

“It is expected that the reform will not change the overall tax burden of the economy, but should seek to encourage a more efficient system. Today we have a very unequal system, some segments are taxed higher than others. In the case of industry, it is one of the most taxed economic segments. In other countries, sometimes there is disparity, but few have such a large inequality,” said Castelo Branco.

Source: Agência Brasil