However, expectation of recovery of the amounts by the government is low, around 16%
Breno Vasconcelos — Foto: Divulgação
The amount of tax liabilities, added to debts recorded as delinquent, reached the level of R$5 trillion for the first time. At the same time, the expectation of recovery of the amounts by the government is low, around 16.06%, which represents R$813 billion of the total.
The unprecedented data, classified by the Ministry of Finance as “an extremely significant amount,” is included in the Accounting Report of the National Treasury, which will be released on Tuesday. The agency also points out that despite the increase in tax liabilities, the “average expectation of recovery is relatively low.”
The figure also draws more attention at a time when Finance Minister Fernando Haddad is preparing measures in an attempt to raise revenue to rebuild the tax base and support the fiscal framework, which aims to reduce to zero the deficit in public accounts as early as 2024 – when a tax liability is recovered, it is classified as primary revenue.
“This figure shows one of the main problems that exist today in public finances in Brazil, which is the collection and corresponding recovery of these tax liabilities,” Heriberto Henrique, Undersecretary of Accounting at the National Treasury, told Valor.
This amount is made up of four factors: 1) Tax liabilities to be paid under the jurisdiction of the Secretariat of Federal Revenue, recorded in the books in the gross amount of R$386 billion; 2) Liabilities recorded as delinquent managed by the Attorney General’s Office of the National Treasury (PGFN), recorded in the books in the amount of R$1.02 trillion.
This amount also includes 3) Tax liabilities managed by the Federal Revenue, but not recorded in the books because their collection has been suspended by both the Administrative Council of Tax Appeals (CARF) and the courts, amounting to R$1.956 trillion; and finally: 4) Liabilities recorded as collectible debts managed by the PGFN, but not included in the accounts because they are considered difficult to collect, amounting to R$1.694 trillion.
For each category of debt, however, there is an adjustment for losses. This happens when the PGFN or the Federal Revenue itself, based on past operations and mainly on the taxpayer’s credit score, considers that a certain tax liability is unlikely to be paid. This is the case, for example, of a pile of R$1 trillion recorded as delinquent debt by the PGFN. According to the report, R$453 billion of this amount is classified as difficult to collect, leaving a net balance of R$567 billion.
The Ministry of Finance explains in the report that this adjustment is made because when a tax liability is included, the taxpayer is supported by the legislation, with the right of defense both in the administrative body and in the courts and the possibility of joining long-term installment programs. This affects the expectation of the federal government receiving the amount, both in terms of amounts and in terms of time.
For loans managed by the PGFN, the agency assigns scores ranging between A and D, according to the prospects of recovery. Thus, the adjustment for losses is measured taking into account the expected recovery of loans rated “A” and “B” (whose recovery percentages are 70% and 50%, respectively), while those rated “C” and “D” are classified as difficult to recover, with chances estimated at zero.
As for the amounts managed by the Federal Revenue, the agency explains that the adjustment for losses is calculated based on three criteria: a) index based on the credit score of the delinquent debt for loans over R$1,000; b) default rate for loans up to R$1,000; c) adjustment index for loans in installments.
In 2021, the federal government had R$4.6 trillion in liabilities to receive, while the feasible amount totaled R$744 billion. In 2020, the receivables amounted to R$4.4 trillion, with a balance of R$713 billion.
Breno Vasconcelos, a partner at Mannrich e Vasconcelos Advogados and a researcher at Insper, believes that the low recoverability of tax liabilities may be a reflection of the lack of cooperation between the tax authorities and taxpayers. “Brazil is still in its infancy when it comes to tax compliance, which could reduce litigiousness, but, with few exceptions, we still see a strong mentality of looking at the taxpayer as a potential tax evader. The tax authorities’ response is almost always to increase inspections and create penalties,” he said.
According to a study he conducted on accounting reports from the National Treasury, since 2016 the average recovery ranges between 14% and 16%. Mr. Vasconcelos also linked the numbers to the complexity of the tax system, which the government and Congress are trying to correct with reform in tax laws. “With different taxes and thousands of rules, it is difficult to know which law is applicable,” he said.
Finally, Mr. Vasconcelos also cited some factors that contribute to the low recovery of liabilities: the slowness of the courts, the oscillation in case law, and the average lifespan of companies. “In many cases, the company that the tax authorities are trying to recover doesn’t even exist anymore,” he said.
Rafaela Vitória, chief economist at Banco Inter, points out that the growth of the inventory and the low recovery rates show that this is “a recurring problem of the federal government.”
“The cost of Brazil’s tax complexity is not only borne by companies,” said the economist. “The federal government also ends up having greater difficulty in tax planning due to the uncertainties about these liabilities, as well as the legal costs for this management with the increasing litigation in the courts,” she said. “The effective tax burden in Brazil is already quite high, close to 34%, besides being complex, which stimulates long disputes that are piling up.”
*Por Guilherme Pimenta, Beatriz Olivon — Brasília
Source: Valor International