Tax Transparency and a Fairer Brazil

The worst thing about Brazilians taxes—which are the heaviest of any country in the hemisphere—is not the amount of tax paid or how government often misuses them, but rather that Brazilians don’t even know how much tax they pay in the first place. This past week, the Folha de Sao Paulo reported that the average Brazilian will work from January 1 to May 29 for government, just to pay taxes. Is it fair that hard-working Brazilians spend almost half of the year working for a government that provides them with services of questionable quality and scope? It might be fair, if Brazilians knew what they were paying and how their money is being used. Unfortunately, tax and fiscal transparency in Brazil is still wanting.

If Brazil is to advance—to be a competitive, fair, and progressive country—it should make greater tax transparency a priority. Brazil urgently needs to move forward with a freedom of information law, which currently awaits passage in the Senate. Promised by President Lula da Silva but delayed since at least 2006, this law provides citizens with the regulated right to ask for specific information and obligates governments at the municipal, state, and federal levels to respond within limited timeframes. The law is a first step toward greater transparency, and it also obligates government to be more proactive in disclosing information about public funds.

Notwithstanding the soon-to-be-enacted freedom of information law, government needs to become more proactive about tax transparency. Other countries have long maintained such traditions. In Canada, gasoline stations clearly show consumers that fuel is subject to a 13 percent harmonized sales tax (federal and state), 10 percent federal excise tax, and a 14.7 percent state gasoline tax, making for a total of 37.7 percent tax. When consumers buy anything at a store, sales tax is calculated at the moment of purchase. So if I buy a radio for $100, when I go to pay I will be charged $115: 7 percent federal, 8 percent provincial tax. In this way, consumers begin to understand what they are paying, and they begin to be concerned about how government is using their money—they start to demand more accountable government.

In Brazil, by contrast, taxes are hidden: value added taxes, fuel taxes, import taxes, circulation taxes, financial taxes, industrial production taxes, among others. The cost of an average car in Brazil includes approximately 27 to 30 percent tax, according to the website, Dieta do Impostao (the Big Tax Diet), more than twice what Canadians pay, which explains why cars in Brazil are more expensive than just about anywhere else. But Brazilians are ignorant to these facts because of deficient tax transparency.

The business organization Confederacao de Industrias do Brasil (FIESP and FIRJAN, for example), is undertaking a campaign to inform Brazilian citizens how much they pay. As the insatiable Big Tax character of the Dieta da Impostao tells us, Brazilians pay 53 percent taxes on gasoline, and pay more than 70 different taxes in total.

Where does all this money go? Some important projects are being undertaken with public money, including projects that center on public infrastructure, education, and health. Yet a 2008 report by the FIESP’s DECOMTEC estimates that between 65 and 110 billion Reais are lost to corruption every year, or about 1.4 to 2.3 percent of GDP. Much of the blame can be placed on a lack of transparency, which prevents citizens and the media from effectively monitoring government. The freedom of information law now in the Senate, and urgently requiring the attention of legislators, is a first step towards a fairer, more efficient, and professional Brazil.