Brazil is often cited as one of the countries with the highest tax burden, but it is important to understand the context behind this statement. While Brazil is not, in fact, the highest taxing country in the world in absolute terms, its effective tax burden and complexity can seem heavy when compared to other countries. Let’s explore some factors that explain this perception.
1. High Tax Burden
The tax burden in Brazil, which is the sum of all taxes levied on consumption, income, property and production, is high in relation to the GDP (Gross Domestic Product). According to the IBGE (Brazilian Institute of Geography and Statistics), the Brazilian tax burden is around 33% of the GDP, which places Brazil among the countries with the highest tax burden in the world, although there are countries such as France, Denmark, and Belgium, which have even higher tax burdens.
2. Complexity of the Tax System
Brazil is known for having one of the most complex tax systems in the world. This means that, in addition to the high tax burden, the process of paying and complying with tax obligations involves enormous bureaucracy. Companies and citizens have to deal with a multitude of federal, state and municipal taxes, each with different and often constantly changing rules.
The main taxes in Brazil include:
• Federal taxes, such as IR (Income Tax), IPI (Tax on Industrialized Products), PIS/COFINS (contributions on companies' gross revenue), and INSS (social security contributions).
• State taxes, such as ICMS (Tax on the Circulation of Goods and Services).
• Municipal taxes, such as ISS (Tax on Services) and IPTU (Tax on Urban Property and Land).
Furthermore, the multitude of ancillary obligations (mandatory documents and tax declarations) makes the system even more complicated, requiring companies and citizens to hire specialized professionals, increasing the cost of compliance.
3. Consumption Taxes
One of the main features of the Brazilian tax system is the high level of consumption taxes. ICMS, for example, is a state tax on the circulation of goods, which can vary between 7% and 18% depending on the state and the type of product. In addition, IPI, PIS and COFINS are taxes on the production and circulation of goods and services.
These taxes are particularly burdensome for consumers because they directly affect the final price of products and services, increasing the cost of living and impacting the competitiveness of Brazilian companies. According to the OECD (Organization for Economic Cooperation and Development), Brazil is one of the countries with the highest consumption tax rates.
4. Income and Property Taxes
Another factor that contributes to the perception of high taxation in Brazil is income tax, both for individuals and companies. Although the maximum IRPF (Personal Income Tax) rate of 27.5% is not the highest in global terms, the tax rate table and exemption bands can be considered less favorable for the low and middle-income population, which leads to a higher number of people paying income tax.
Furthermore, IPTU and IPVA (Tax on Motor Vehicle Ownership) are other examples of taxes that directly affect Brazilian citizens.
5. Inequality in the Distribution of the Tax Burden
One of the most critical aspects of the Brazilian tax system is the regressivity of many taxes, i.e., taxes that are levied on consumption (such as ICMS, IPI, PIS/COFINS, etc.) affect low-income people more than high-income people. This is because, while the rich can pay large amounts in taxes on their income, the poorest end up committing a significant portion of their income to consumption taxes.
This problem is aggravated by the lack of progressiveness in the tax system, that is, the richest do not pay taxes proportional to their ability to pay, which worsens social inequalities in the country.
6. International Comparison
Compared to other countries, Brazil is not necessarily at the top in terms of absolute tax rates. For example:
• France has a tax burden of 45% of GDP, one of the highest in the world.
• Sweden and Denmark also have higher tax burdens, mainly due to a progressive tax system and high income tax rates.