Brazil IT giant blasts tax reform bills
Simplifying Brazil’s convoluted tax code is at the top of the agenda of the current legislature.
There are two proposals running in parallel in congress, one in the senate and the other in the lower house, but the latter bill is the one garnering greater consensus and is advancing faster.
The topic is one of the priority macro reforms of economy minister Paulo Guedes, who is expected to present his own tax overhaul proposal soon.
With such a complex structure, with taxes at city, state and federal levels, reaching a consensus among all interested parties and sectors is not easy.
“Brazil needs a tax reform, but not the way it's being conducted. I think that too much weight is being given to the industrial and financial sectors and not to the areas that generate most jobs, which are services and retail,” Marco Stefanini (in photo), founder and CEO of Brazilian IT multinational Stefanini, told BNamericas.
The lower house proposal involves scrapping three federal taxes (IPI, PIS and Cofins), plus the ICMS state tax and the ISS city tax – all of which are levied mostly on consumption. Instead, a value-added tax called the goods and services tax (IBS) would be created and its revenues would be split among the federal, state and municipal governments.
The bill also outlines a federal-only tax on goods and services, called the selective tax. The bills under consideration in the lower house and in the senate differ in the number of taxes that would be unified and the transition period, among other points.
Stefanini argues said he favored instead an idea pushed by Guedes that involves zeroing all payroll taxes in exchange for a new tax on financial transactions.
“The minister clearly has a vision of fostering job creation through the lowest possible workforce taxation, but unfortunately this is not the vision of the house and senate bills,” the CEO said in São Paulo.
Guedes’ idea did not advance because any financial transaction tax would be extremely unpopular. A new government proposal is said to be in the works.
In 2016, leftist president Dilma Rousseff was booed in congress when she called for the reinstatement of a financial transaction tax called the CPMF that years before had been ended by legislators.
Rousseff argued that the CPMF would be temporary and the revenue would be shared with state and local governments as part of a “transition to tax code reform."
She also cut payroll taxes in 56 industry sectors, replacing them with a tax on companies’ gross revenues. As now, the idea was to boost formal jobs.
The measure was applauded and backed by the majority of industry associations, including the powerful CNI confederation. But according to most economists, the payroll tax breaks were a flawed initiative that did not lead to job creation.
On the contrary, they argue that the measure contributed to the weakening of the economy and the high current account deficit that led to the recession.
Stefanini, however, said the proposals in congress would not foster job creation either.
STEFANINI GROWTH
With five offices, Mexico is today the Stefanini group's main Latin American operation after Brazil.
The company is present in 41 countries with 25,000 employees in 88 offices and offers services in 35 languages. Most international revenues come from Europe and Asia.
The group is expected to report a 10% increase in 2019 global revenues to 3.3bn reais (around US$800mn).
The main driver has been the digital solutions unit, which has grown 35% this year and accounts for almost a third of total revenues. The forecast is to exceed 50% in the next three years, Stefanini said.
The unit includes projects developed in partnership with other companies and venture investments.
Digital banking solutions have been a major driver. In Mexico, 70% of Stefanini’s revenue comes from the banking sector.
Looking ahead, the company sees as the main trends, in addition to banking, growth of the industry 4.0, digital marketing, cyber security and artificial intelligence segments.
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