REDUCING THE TAX BURDEN AND LOWERING THE SHARE OF INDIRECT TAXES AS INSTRUMENTS FOR PROTECTING HUMAN DIGNITY

Abstract

The modern world has witnessed an escalation of state intervention on a global scale. The causes are diverse, but the consequence is the same: an increase in the tax burden on taxpayers.

The increase in the tax burden, as a result of the expansion of the State, generally has a humanitarian appeal merely in the rhetoric of benefiting the neediest. However, the reverse of these policies tends to steadily increase poverty and low economic growth in nations. Poverty may even appear to be reduced through temporary government aid, but its causes remain irreparable.

Within this context of poverty and increased state intervention, Paulo Bonavides masterfully highlights the consequences of the politicization of the State's social function, which exacerbates individual dependence and undermines democracy by consolidating authoritarianism.[1] Verbatim:

The welfare state, by its very nature, is an interventionist state, which always requires the militant presence of political power in social spheres, where individual dependence has grown, due to the inability to provide for certain basic existential needs, faced with factors beyond their control.

The fact that contemporary man has been the mass man—from birth, trapped in a network of complex social interests, with his material autonomy significantly diminished, in most cases irrevocably extinguished—has led him, amidst these responsibilities, like a castaway in despair, to invoke the protection of the state, the messianic hope of his salvation.

(...)

The Man who once dominated a large, autonomous existential space, with his house, his farm, his vegetable garden, his stable, his organized and independent domestic economy—the Man with whom the nineteenth century still dawned—is, in our day, a resigned person to this entire subjective material sphere, which enabled him, in the political order, to adopt an individualistic and liberal philosophy, and, in the economic order, to believe in his own personal energies and to adopt an attitude of firmness, independence, and pride toward the State.

(...)

When these bonds of dependence become, as they do today, a true Gordian knot of social and political problems, the individual runs a serious risk.

The State, which by its very nature is already an organization of domination, can, under the helm of ambitious and autocratic rulers, devoid of scruples, become an apparatus of abuse and attacks on human freedom, exploiting, in the interest of its power and dominance, the basic dependence of the individual, thus transforming it into a mere instrument of state ends.

This is what occurs with the totalitarian welfare state.[2]

Thus, a substantial increase in the dependence of people in general on the State is perceived, which feeds back into state growth and, with it, the increase in the gross tax burden as a whole.

With this focus, this dissertation attempted to clarify that Brazil is a country with a high gross tax burden, especially compared to its peers, a high level of unemployed and/or informal workers compared to those formally employed; while having a low per capita and proportional average income. All of this is linked to a steady upward trend in the Brazilian Tax Code (CTB) and specific tax reforms that fail to reduce the burden of taxes, decentralize indirect taxes, or improve the generally low human development index of the poorest.

Regarding the research methods, bibliographic, documentary, and qualitative methods were used as a basis, with the former predominating. The methods used as sources and for the research objective. Bibliographic research was used as a secondary source, focusing on published books, scientific articles, and online texts, which have already been analyzed and debated in their respective fields. Documentary research was based on primary sources, such as official documents, statistics, graphs, tables, and works from official bodies and/or recognized institutions, which have already been analyzed in their specific field. Applying a qualitative approach, however, aims to explain a phenomenon in depth. Thus, qualitative research is interpreted as opinionated and analytical, since the collection of data and various expert opinions generated the conclusions reached here based on the data and facts over the years and other related topics.

Furthermore, the 1988 Constitution of the Federative Republic of Brazil (CF/88) was used, as well as other laws, bills from the Brazilian legal system, and others, which were scientifically analyzed with the support of authoritative doctrine on the subject.

These points gave rise to the intention of writing this dissertation: to announce the expansion of state gradation in tax collection and its consequences for people's lives.

To deepen understanding and historical perspective, this study began with the emergence of taxes in humanity. This was almost always linked to war issues, that is, the primitive society of the time came together to contribute to its defense at the time, donating various items in kind that provided the necessary help in that specific conflict, after which this contribution ceased.

However, especially after the emergence of money, taxes in kind (services, agricultural products, manufactured goods, etc.) gave way to pecuniary ones. Even here, once the threat of war had passed or the need for it had ceased for the early civilizations, taxes ceased to be collected.

Historical records point to the region of Sumer, in present-day Iraq, as the genesis of perennial tax collection, over six thousand years ago. This already marked the beginning of the permanent trend of tax collection, which gradually began to lose its temporary character and merely for occasional military matters. Tax collectors discovered the power of the state in their activities and refused to abandon their work.

However, it was in ancient Egypt that tax collection gained more structure and organization, with the collection of taxes being assigned to scribes or collectors.

Some time later, ancient Greece developed its own incipient tax system, but under democratic principles. Following this, the Romans improved upon the Egyptian and Greek experiences and created indirect taxes on goods under Augustus, differentiating them from direct taxes.

With the fall of the Roman Empire, the Middle Ages brought their own tax peculiarities, including a return to the collection of taxes in kind in some cases.

Continuing this trend, the idea of ​​limiting the power to tax began to emerge, shifting from the mere will of the ruling prince to the jurisdiction of parliament in this matter, as occurred in England in 1215 with the Magna Carta.

However, the great democratic leap forward came in 1776, with the independence of the United States, when the power to tax was consistently delegated to the representatives of the people, through the democratically elected parliament. From that point on, the mere discretion of rulers to assign the bill for their personal and other expenses disguised as public expenses formally ceased to exist, marking a historic end to tax arbitrariness.

Brazil found itself in this context after its discovery in 1500. In this scenario, tax collection here essentially replicated Portuguese legislation until 1530, when colonization of the new lands effectively began.

Starting in 1534, the Hereditary Captaincies were created to foster colonization and stimulate economic activity in Brazilian lands other than the mere extraction of Brazilwood. The instruments used by the Portuguese crown were the Letter of Donation and the Charter. The Charter was a complementary document that even served as a tax delegation for the grantees.

The General Government was established in 1548, creating an entire administrative apparatus, with salary incentives for Portuguese immigrants, which generated the need for more taxes to support these new expenses.

A new economic cycle emerged around the 17th century, with the economy shifting from sugarcane to mining. During this period, after the end of the Iberian Union, Portugal further increased the pressure to collect taxes on its main colony, sparking numerous revolts, all of them against the resulting tax oppression.

In 1808, the royal family and the Portuguese court arrived in Brazil. The ports were subsequently opened to free trade. This resulted in increased taxation, as new taxes were instituted, such as import duties. Thus, the increased commercial activity in the colony encouraged the Portuguese crown to impose new taxes and, consequently, further increase the tax burden borne by the local population.

With Brazil's independence in 1822, the first constitution emerged in 1824. It was highly centralized in terms of taxation, generating tax disputes between the central government and the provinces. In 1834, the Additional Act was introduced, which aimed to alleviate tax disputes by ceding part of the central government's tax jurisdiction to the provinces.

With the coup d'état of 1889, the republic emerged. With it, several constitutions were enacted, up until the current one of 1988, but none focused on reducing the national tax burden on the population.

The first republican constitution differed from its predecessor in that it favored tax decentralization, allowing greater autonomy to the states from that point onward. This can be considered positive and unprecedented since colonial Brazil.

But not everything is rosy, as the Old Republic, as it was known between 1891 and 1930, was marked by tax privileges granted to coffee-producing states, especially Minas Gerais and São Paulo, to the detriment of other states.

In a true turnaround, the country experienced intense centralization between 1930 and 1945 with the Vargas Era. From then on, tax policy became centralized and acquired a national character.

With the end of World War II in 1945, another Brazilian constitution was created in 1946, and with it, a more technical tax system, lasting until 1964, when the military regime began in Brazil until 1985. This military period was marked by economic growth and the strengthening of the tax system, which underwent significant changes with the new Constitution of 1967. The National Tax Code (CTN) emerged from this period.

The military regime was prolific in tax matters, and many of these changes persist to this day.

In 1988, a new tax era emerged in the country with the enactment of the current 1988 Constitution. Under the current political charter, public spending expanded rapidly, and as a direct consequence, the tax burden continued to increase even more intensely to this day.

Then, the concept, nature, relevant classifications, types, tax principles, and purposes of taxes were also examined.

In summary, the concept of tax is found in Article 3 of the National Tax Code (CTN), which states that "Tax is any compulsory pecuniary payment, in currency or whose value can be expressed in currency, that does not constitute a sanction for an unlawful act, established by law and collected through fully binding administrative activity."[3]

Doctrines are almost unanimous in following this legal concept. Furthermore, the second chapter addressed various tax classifications and types, such as the understanding of doctrine and the Federal Supreme Court (STF) that the current national tax system encompasses five types of taxes: duties, fees, compulsory loans, improvement contributions, and special contributions.

Among the relevant classifications, the distinction between direct and indirect taxes was mentioned. The former are those in which the legal taxpayer is the same as the de facto taxpayer. That is, the payer of the tax stipulated by law bears the burden of collecting the amounts without, in theory, the possibility of passing the burden on to third parties. This is theoretically true, since the entire tax burden is always incorporated into the production chain and passed on to the end consumer in some way. Indirect taxes, on the other hand, are those in which the legal taxpayer naturally passes on the economic responsibility to the de facto taxpayer, a third party in the tax chain.

Examples of direct and indirect taxes include Income Tax (IR) and ICMS, respectively. The first, in principle, is borne by those who actually pay it into the public coffers, without it being passed on to third parties; while the second involves the transfer of the economic responsibility to other participants in the taxable event, other than the taxpayer. As stated in the previous paragraph, in a production chain, there will always be some form of passing on the tax burden to third parties, the difference being more direct and explicit in indirect taxes and more hidden and veiled in direct taxes.

Regarding the purposes of taxes, there are several, but objectively and succinctly, one could point to public expenditures in general, which includes the administrative costs of the public sector.

Continuing, chapter three discussed the trajectory of the tax burden in Brazil, its consequences, and the upward trend since the Federal Constitution of 1988.

During the analysis of official data, particularly from the Brazilian Institute of Geography and Statistics (IBGE), it was observed that the numbers tend to be more positive for the government than the reality felt by taxpayers. In fact, there is a contemporary crisis between civil servants and the current president of the institute, who question the credibility of some of the agency's positions. The institute pointed to a slight decline in the CTB (Tax on Taxes and Tax Regimes) between 2022 and 2023 (from 33.07% to 32.44%), despite widespread publicity about increased public spending and the corresponding tax cuts during the same period.

In any case, the focus was to demonstrate, through statistics, graphs, and tables, that the gross tax burden in Brazil has always been on an upward trend, which continued after the implementation of the current constitution. Therefore, the 1990s were marked by a substantial increase in the CTB (Tax on Taxes and Tax Regimes).

The gross tax burden has been gradually increasing to the point of surpassing that of rich and developed countries such as Japan, the United States, and Australia and approaching the Organization for Economic Cooperation and Development (OECD) average. Practically more than a third of the value of everything produced here goes to taxes, which represents a high CTB (Tax on Public Contributions), especially given the country's underdevelopment and the low rate of return on public services.

Furthermore, taxes are concentrated in the hands of the central government, disproportionately so compared to other federative entities such as states, municipalities, and the Federal District.

Furthermore, there is a discrepancy regarding the burden of indirect taxes in Brazil, which are significantly higher and more concentrated here than in developed countries and even among neighboring Latin American countries. The focus is simply on collecting revenue from consumption, because it is easier and cheaper, rather than from income, stifling the economy, consumers, and taxpayers in general.

Next, chapter four presented the consequences of Brazil's high taxation on the poorest and the continued disproportionate impact of indirect taxes even after Constitutional Amendment No. 132/2023 (EC 132/2023).

In this context, the poorest, those earning up to half the minimum wage per person or up to three times the minimum wage per family, are those who proportionally bear the majority of their income from the Brazilian tax burden, a regressive approach incompatible with the constitutional principle of human dignity.

Furthermore, the announced tax reform resulting from EC 132/2023 maintained the concentration of taxes on indirect taxes, relegating the principle of taxable capacity and human dignity to another reform in the distant future, as there was no intention to reduce the current gross tax burden or shift the focus to direct taxes, particularly personal income taxes and their natural progressiveness.

The revenue-raising objective was maintained at all costs, and even an upward trend is already being considered, given that a maximum rate of 26.5% was initially planned for the Dual Value Added Tax (ICMS). However, the need to increase it to over 28% is already evident, constituting the highest value-added tax rate in the world.

Mechanisms created to alleviate this regressiveness maintained by the reform, such as cashback, are inefficient and prone to fraud, as developed countries have already indicated the path of direct and progressive taxes as the most viable and efficient for this purpose.

The reform in question has positive aspects, such as simplifying legislation, but it represents yet another missed opportunity for a genuine change in the Brazilian tax system and a wasted attempt to reverse its high tax burden and disproportionate concentration on consumption taxes.

Finally, chapter five discussed that Brazil's high and complex tax burden and its concentration on consumption taxes have repercussions on the economy, the judiciary, the low rate of return to the population, and the high vacancy rate and informality in general.

In other words, according to renowned economists, the high CTB (Tax on Taxes and Contributions) and its disproportionate concentration on indirect taxes stifle the economy and the labor market, consequently preventing vigorous and consistent growth of the Gross Domestic Product (GDP) over the decades.

Correspondingly, it also hinders the functioning of the Judiciary, given that tax-related lawsuits account for approximately 40% of the total backlog, in addition to negatively impacting the excessive delays in processing tax enforcement proceedings.

Regarding the low rate of return to the general population, in addition to the high vacancy rate and approximately forty million informal workers in the labor market (38.8%); The high CTB (Tax on the Brazilian Tax Code) and the unbalanced concentration of indirect taxes are directly related, as seen in the aforementioned chapter.

In conclusion, we sought to highlight the economic obstacles and the disregard for the principle of human dignity caused by the high national tax burden and its disproportionate concentration on consumption taxes. The humanistic solution would be to follow the examples of developed countries with thriving economies and high human development that have adopted low tax burdens of 20% or less, in addition to centralizing their taxes on personal income taxes, thus maximizing compliance with the principle of human dignity and taxable capacity.

In this regard, this dissertation focuses on the areas of Constitutional Law, Tax Law, Civil Law, Business Law, Financial Law, Economic Law, Human Rights, and Fundamental Rights.

1.1 OBJECTIVES

This paper aims to demonstrate the current high tax burden and its evolution over the years, especially after the Constitution of 1988, as well as the disproportionate concentration of indirect taxes and their consequences for the economy and workers' income. These data are based on official statistics, specialized doctrine, and information from international organizations, among others, which demonstrate the burdensome Brazilian Tax Code (CTB) and its harmful effects on Brazil's low economic growth, high unemployment among working-age people, the significant informality rate, and low average incomes paid to Brazilian workers.

1.1.1 General Objective

The primary objective of this dissertation is to reveal the high tax burden borne by the Brazilian population, especially its workers, especially in light of the low returns the Brazilian government provides to ordinary people. Furthermore, it demonstrates the disproportionate nature of the national tax system by concentrating revenue collection within the jurisdiction of the Union and indirect taxes on consumption, which undermine the concept of a federation and hinder economic growth, formal employment, the average income of workers, and the possibility of social advancement for the poorest, all in violation of the principle of human dignity.

1.1.2 Specific Objectives

- Define what a tax is and its purpose, highlighting its legal meaning and understanding the relevant doctrine on the subject;

- Conduct an analysis, in light of legal scholars and other experts, of the historical origins of the tax and its actual increase in the composition of the Brazilian tax/revenue burden;

- Analyze the direct and indirect consequences of the heavy tax burden and the concentration of indirect taxes on the low economic growth experienced by Brazil in recent decades, in addition to the high unemployment rate among working-age people and informality in the labor market, in addition to the low average income of Brazilian workers;

- Compare the national tax situation with that of developed countries, especially OECD members and underdeveloped Latin American neighbors, and infer that the Brazilian tax system is high in its resulting burden and disproportionate even comparatively;

- Identify the legislation applicable to the national tax system and the proposed reforms and modifications;

- Identify the impacts that the high and concentrated tax burden has on the Judiciary, the economy in general, and the common people, especially the poorest;

- Identify the root of the problem of the high and concentrated CTB (Tax on Consumption) and shed light on an alternative path that reduces the heavy gross tax burden and shifts the collection focus from indirect consumption taxes to direct taxes, especially personal income taxes, aiming for the full effectiveness of the principle of tax capacity and human dignity.

[1] BONAVIDES, Paulo. FROM THE LIBERAL STATE TO THE WELFARE STATE. São Paulo, Malheiros Editores, 2004, p. 200.

[2] BONAVIDES, Paulo. FROM THE LIBERAL STATE TO THE WELFARE STATE. São Paulo, Malheiros Editores, 2004, p. 200/201.

[3] Brazil. ACT NO. 5,172, OF OCTOBER 25, 1966. Establishes the National Tax System and establishes general tax law rules applicable to the Union, States, and Municipalities. Available at: https://www.planalto.gov.br/ccivil_03/leis/l5172compilado.htm. Accessed on September 30, 2024.