Government going after big debtors to recover unpaid tax

. Mar 02, 2020
Companies in Brazil owe a combined BRL 2.2 trillion to the federal government, and courts and lawmakers are pursuing measures to reclaim a part of this tax haul Image: Ryzhi/Shutterstock

The total amount of debt that 4.6 million Brazilians and companies operating in the country currently have with the federal government equates to a stonking 32 percent of Brazil’s GDP. While ongoing discussions toward a vast overhaul of the country’s tax system seek to solve future problems by simplifying the way tax is paid in Brazil, the country’s three branches of power are also getting their heads down to try and design measures to recover this BRL 2.2 trillion debt mountain.

</p> <p>Moving in this direction, the Supreme Court recently decided to make the nonpayment of declared State Goods and Services Tax (ICMS) a crime, as opposed to a mere tax violation. With a variety of different rules from state to state, ICMS is among the most costly for Brazil&#8217;s production chains and is one of the hardest taxes to properly calculate. Now, business owners who declare ICMS tax and do not pay it may be held liable in criminal courts—a move that seeks to dissuade the nonpayment of these debts.</p> <div id="buzzsprout-player-1516360"></div> <script src="https://www.buzzsprout.com/299876/1516360-72-can-brazil-approve-a-tax-reform.js?container_id=buzzsprout-player-1516360&#038;player=small" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <p>In conjunction with this, Congress is analyzing ways to facilitate the collection of amounts due from what they call &#8220;persistent debtors,&#8221; which are a group of 16,000 repeat tax offenders that <a href="https://brazilian.report/newsletters/brazil-daily/2020/01/30/brazil-public-deficit-smaller-dilma-coronavirus/">owe a total of BRL 1.4 trillion to the federal government</a>—over half of the total debt from companies and individuals.&nbsp;</p> <p>A proposal currently pending in the legislature is geared towards simplifying the recovery of this BRL 1.4 trillion. On one hand, it intends to punish persistent debtors by revoking their operating licenses and locking them out of all tax breaks for ten years. However, for debts classified as &#8220;irrecoverable&#8221; or &#8220;difficult to recover&#8221;—reserved for when the debtor in question does not have the financial capacity to make repayments—the government intends to offer discounts of up to 70 percent on the debt&#8217;s interest, and permit repayment plans stretching up to eight years. The objective is to recover some BRL 2.8 billion of unpaid tax by 2022.</p> <p>If approved, the measure will come as a pleasant boost for several interest groups, with the transport and storage (BRL 159 bn), agriculture and livestock (BRL 38.2 bn), extractive industries (BRL 62.9 bn) and electricity and gas (BRL 20.5 bn) sectors being the biggest debtors, according to figures obtained by data journalism group <a href="https://fiquemsabendo.com.br/transparencia/newsletter-dont-lai-to-me/"><em>Fiquem Sabendo</em></a>. With a total debt of BRL 354 million, three large Brazilian neo-Pentecostal churches and one Catholic church are set to be among those who will benefit from the government&#8217;s proposed discounts, <a href="https://apublica.org/2019/12/igrejas-devem-mais-de-r-460-milhoes-ao-governo/">according to <em>Agência Pública</em></a>.</p> <div id="buzzsprout-player-1079168"></div> <script src="https://www.buzzsprout.com/299876/1079168-58-a-look-into-brazil-s-super-complex-tax-system.js?container_id=buzzsprout-player-1079168&#038;player=small" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <h2>Tax debtors getting the carrot, not the stick</h2> <p>This bill on major debtors is part of a federal government decree package for renegotiating liabilities. With further provisions for smaller installment repayments, its goal is to rectify the situation of 1.9 million taxpayers currently in debt, owing a combined total of BRL 1.4 trillion. The first projections of the federal government suggest their measures will bring in BRL 6.384 billion in 2020 and BRL 5.914 billion in 2021.</p> <p>One of the main remedies being considered by the federal administration is the reduction of fines for tax evasion and fraud, which can add up to 225 percent of the value of the unpaid tax in question. A government survey showed that more than 70 percent of small debt cases concern amounts lower than BRL 20,000. Therefore, by granting discounts, the administration hopes that these taxpayers would be able to make monthly payments of BRL 170 and move toward rectifying their tax status.</p> <p>While the measure is intended to help indebted small businesses, politicians may also be able to benefit. Currently, over <a href="https://brazilian.report/power/2020/01/28/brazilian-politicians-debt-federal-government/">7,000 politicians owed a combined total of BRL 1.1 billion</a> to the public coffers, and that half of these debtors owed BRL 10,000 each.

 
Brenno Grillo

Correspondent in Brasília. Journalist since 2012, is especialized in cover Law and Justice. Worked in comunication agencies untill be choosen to be an intern in O Estado de S.Paulo. Also worked in Portal Brasil and political campaigns. His last job was in ConJur, website especialized in Justice news.

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