boosting brazil’s economy br miguel abuhab at tocico
TRANSCRIPT
2015 TOCICO International Conference
© 2015 TOCICO. All Rights Reserved.
A plan to boost Brazil’s economy by
simplifying its tax system
by Miguel Abuhab
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Goals
2
Boost economy
Leverage of the formal economy
Simplify the tax system
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2015 TOCICO International Conference
Overall
3
A first glance over the Brazilian economy landscape would show several problems
In a holistic approach we identify the undesirable effects that jeopardizes the country’s economic development
...However,
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2015 TOCICO International Conference
Overall
4
Local Optimum
Face the problem under a holistic approach
Global Optima
Deals with the UndesirableEffects one by one
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2015 TOCICO International Conference
Undesirable Effects
5
Increase oftaxes rate
Tax incomesreduction
High cost oftax collectionTax avoidanceFiscal DisputeExcess of lawsuits
Expensive overhead
to the taxpayerPenaltiesCorruptionSMB TaxSystem
Tax RefinanceInspectionSideObligationsTax Substitution
Informal EconomyDefaultWitholding
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2015 TOCICO International Conference
…When we deal with each problem in isolation we deal with the symptoms and not the real cause.
Theory of Constraints
6
In order to improve the overall we don't have to improve everything
As long as the real cause is untouched the symptoms/problems will not go away and new ones will be created.
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2015 TOCICO International Conference
Simplify means to reduce the numbers of touchpoints needed to impact the whole system
Theory of Constraints
7
7 touchpoints 1 touchpoint
The complexity of a system is measured by the number of points that need to be touched to impact the whole system
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2015 TOCICO International Conference
Most of the current business rules were created under a technology constraint
Once the constraint was removed, the business rules remained the same
Orthodoxy
8
Orthodoxy is everything we do, we don´t know why we do, but we keep doing
An orthodoxy arises when despite of the end of the technology constraint, there´s noevolution in terms of behavior and the business rule set during the technologyconstraint remains untouched.
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A Classic Case of Orthodoxy
9
Hotel
CHECK-IN
12HCHECK-OUT
12H
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Orthodoxy
10
Goods Goods were used for tax payment
Technology constraint
MoneyTechnology constraint removed Taxes are payed in
money
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UNDERSTANDING THE PLAN
11
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Conflict
12
to
to
to
In order to ensure the
country`s competitiveness we
need to do the tax reform
Follow the legislationDo not do the tax
reform
Do the tax reformEnsure country
competitiveness
Boost economy
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
…The taxes must be calculated and collected based on the taxpayer initiative
Wrong Assumption
Because we erroneously believe that...
13
…The taxes collection must be based on the goods circulation.
In order to ensure the country`s competitiveness we need to do the tax reform
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2015 TOCICO International Conference
Current technology allows taxes to be calculated based on the money circulation and collected through its flow within the banking system
Breaking the Wrong Assumption
14
…The taxes collection must be based on the goods circulation.
…The taxes must be calculated and collected based on the taxpayer initiative
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2015 TOCICO International Conference
Tax is declaratoryTax collection depends
on taxpayer initiative
Bank transactions have
no accounting support
High complexity and cost to the taxpayer
corruption
tax substitution side obligations
withholding default
inspection
assessment
fiscal war tax avoidanceexcess of lawsuits
informal economy
SMB Tax SystemTax Refinance
high cost of tax collection
Current Reality Tree
15
Increase of taxes rate
tax incomes reduction
Unbalanced tax benefits
are granted by States
Undesired effects
Root cause
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2015 TOCICO International Conference
Tax is declaratory
Taxes start to be
automatically calculated
by the State
Unbalanced tax benefits
are granted by States
Fiscal benefits start to be
equally granted by the
States
Tax collection depends of
taxpayer initiative
Bank transactions have
no accounting support
High complexity and cost to the taxpayer
corruption
tax substitution side obligations
withholding default
Inspection
Assessments
Fiscal War Tax Avoidanceexcess of lawsuits
informal economy
SMB Tax SystemTax Refinance
high cost of tax collection
Placing injections on the root causes
16
Taxes start to be
automatically collected by
the banking system
Banking transactions start
to have accounting
support
Increase of taxes rate
Tax incomes reduction
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2015 TOCICO International Conference
Taxes are automatically
calculated by the State
Banking transactions will
start to have accounting
support
Future Reality Tree
17
Drastic reduction of
declaration costs for
taxpayers
lowering cost in the judiciary
power
Drastic reduction of the tax
assessment numbers
Drastic reductio of
corruption
significant increase of taxes
collection incomes
Drastic reduction of the tax
inspection costs
Drastic reduction of the
default risk
End of Tax
avoidanceEnd of Fiscal Dispute
Drastic reduction of the
informal economy
Drastic reduction of
withholding
Taxes are automatically
collected by the banking
system
Fiscal benefits start to be
equally granted by the
States
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IMPLEMENTING THE PLAN
18
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The Strategy
VAT – “Value Added Tax” to be collected by the banking system on a cash basis
All banking transactions among companies must contain its taxpayers identification number
The companies will be credited when paying their suppliers and will be deducted when theyreceive from their customers. These transactions will be automatically handled by the bankingsystem.
When a company receives a bank deposit regarding a commercial transaction, either productsor services, the tax payment will be automatically collected by the banking system, observingthat the total tax amount due to be paid must be deducted from the company's entry creditand later on handed to the clearing house
The effect is like having a “Cash Added Tax”
19
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2015 TOCICO International Conference
The Strategy
VAT – “Value Added Tax” to be collected by the banking system on a cash basis
The tax collection regarding the sales that are made to end consumers will be collected once the payment services providers place a deposit at the taxpayer's bank account
The tax payment regarding the sales on cash will be collected based on the fiscal coupon
The tax incomes will be daily collected through the banking system and will be transferred to the government’s treasury
Only the exceptions must be reported by the taxpayers
The tax is non-cumulative
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2015 TOCICO International Conference
Tax collection on cash basis
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Industry Manufacturer Retailer End Consumer
e.g. VAT: 1%
$100 $1000$500
DB: $ 1
*EC: $ 0
DB: $ 5
*EC: $ 1
DB: $ 10
*EC: $ 5
VAT: $5
* Entry Credit (Accounting)
VAT due to pay: $4
VAT: $1
VAT due to pay: $1
VAT: $10
VAT due to pay: $5
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2015 TOCICO International Conference
Tactics
Technological implementations
All banking transactions among companies must contain its taxpayersidentification number (CNPJ at Brazil)
Mandatory inclusion of the invoice number in all electronic billing messages (Financial EDI) among companies and banks.
22
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2015 TOCICO International Conference
Conflict
23
to
to
to
In order to ensure the
country`s competitiveness we
need to do the tax reform
Follow the legislationDo not do the tax
reform
Do the tax reformEnsure country competitiveness
Boost economy
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Eliminating the conflict
24
to to
Follow the legislation
Do not do the tax reform
Ensure country competitiveness
Boost economy
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Solutions
25
The current legislation remains the same
The decision to implement the plan lies in the Executive Power
Do not do the tax reform
and
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2015 TOCICO International Conference
Quote
“It always seems impossible until its done.”
Nelson Mandela
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2015 TOCICO International Conference
Thank you!
Miguel Abuhab holds a mechanical engineer bachelor's degree fromITA - Brazilian Air Force Institute of Technology, rated as one of thetop and most prestigious engineering schools in Brazil. Miguel’s firstendeavor as an entrepreneur ended up to be the biggest ERPcompany in Brazil, implementing fiscal systems at over the 4,000companies.
Miguel also founded NeoGrid - A Global Supply Chain ManagementSystems provider, being awarded by FINEP, the BrazilianGovernment Innovation Foundation, as one of the most innovativecompanies for two years in a row. NeoGrid also featured atGartner’s Magic Quadrant in 2014, for its deep understanding of theBrazilian supply chain landscape and its vast portfolio of InternetBrokerage solutions covering banks, industry, retailers and fiscaltransactions within the Brazilian Tax System.
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Miguel Abuhab
TOC-ICO, Theory of Constraints - International Certification Organization Co Founder