Tax evasion: Is IRS tough? Try Brazil's 'Lion.'
Tax evasion is relentlessly sought out by Brazil's tax agents, known as 'The Lion.' Brazil is counting on the crackdown on tax evasion to fund ambitious government spending.
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In April, local media reported that police seized a sports car owned by Luis Fabiano - a soccer star for the popular Sao Paulo club. Fabiano, a former member of Brazil's national team, denied the authorities' allegation that he had failed to pay taxes on the Audi, which is worth nearly half a million reais.Skip to next paragraph
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"The role of the tax authority is to let taxpayers know that we are keeping an eye on them and that they should do the right thing," Caio Candido, the agency's undersecretary for inspection, said in an interview.
The agents themselves also have a good record of doing the right thing. Corruption cases are few and far between, a sharp contrast with the deluge of charges against officials in the police and other public institutions.
Several Latin American countries such as Mexico and Paraguay are believed to lose as much as half of potential tax revenues to evasion and lax enforcement. By contrast, evasion in Brazil is thought to be around 16 percent of potential income, according to the Tax Planning Institute, a private Brazil-based group.
That rate is high when compared to some northern European countries, experts say, but much better than that of many emerging market peers.
Average tax evasion in Brazil from 2000-2009 was below that of China, India, Russia and South Africa - Brazil's fellow members of the BRICS group of large emerging markets - according to data from Global Financial Integrity, a Washington-based research group that advocates financial transparency.
More than 25 million Brazilians declare income tax. That is less than a quarter of the economically active population because most Brazilians make less than the $8,300 a year, the level at which people have to start paying income tax.
The high-profile cases involving individuals grab the headlines, but the biggest money comes from closely monitoring companies, which make up more than half of Brazil's tax revenue.
Here, technology and manpower play large roles. Teams of accountants and legal experts are deployed to monitor the books of companies year-round. Everardo Maciel, who helped modernize the tax agency in the 1990s, said the authority was one of the first in the world to fully embrace the Internet as a tool.
The agency has about 12,000 agents across Brazil and their tasks range from monitoring the tax receipts of millionaires to hunting for the smugglers of everything from cocaine to Chinese toys along its border.
The government has also managed to instill habits among Brazilians that help prevent evasion.
Cashiers at supermarkets and other retail outlets in big Brazilian cities constantly ask their customers: "Do you want your CPF on the receipt?" By consenting to enter their CPF, which is a personal tax identification number, consumers get a tax refund - and the government gets data that allows officials to better track a company's sales.
Such measures helped the government demand a record 109 billion reais in unpaid taxes from individuals and companies last year. Some of those accused of underpaying are global giants like iron-ore miner Vale, which is partly owned by the government.
Most tax cases take years to be resolved in courts, but the tax agency was able to secure about 18 billion reais in back payments last year alone.
NOT EVERYONE IS IMPRESSED
Some Brazilians see a less virtuous explanation for the tax agency's efficiency - what they describe as their government's all but insatiable appetite for money.
Tax revenues equal to about 35 percent of the country's gross domestic product, well above emerging-market peers and more in line with European countries. But the services offered in return are hardly Europe-like, as Brazil's roads, schools and police remain under-resourced even by Latin American standards.
Sixty-five percent of Brazilians disapprove of the government's tax policies, according to a CNI-Ibope poll released in April. Brazilian vent their anger on websites with names that, translated into English, mean "timetoact.com" or "bigtaxholiday.com."
"Tax collection in this country is very high, but why is the application of that money not as efficient as collection?" said Gilberto Luiz do Amaral, head of studies at the Tax Planning Institute.
Amaral is the creator of the "taxmeter," a website with real-time projections on how much the government is collecting, juxtaposed with headlines like "This could buy 6 million ambulances."
Taxes are not only high but complex. Brazil ranks 150th out of 183 countries in terms of ease of paying taxes, according to the World Bank's Doing Business ranking. It takes nearly seven times longer for companies to prepare their taxes in Brazil than the average elsewhere in Latin America, the bank says.
The marginal tax rate for companies in Brazil averages about 34 percent. Business owners often complain they are charged twice and sometimes even three times the same tax by municipalities and states.
Tax laws are complicated and fast-changing. Private lawyers estimate a new tax rule is created about every seven weeks.
Rousseff says she gets the message. She has vowed to improve the quality of spending and seek tax cuts.
"The government needs to use public resources efficiently and with honesty," Rousseff said in a televised address last week, "so that people feel they are getting a good return for their taxes."