The Minister of Finance, Fernando Haddad (PT), already announced in his first month in office a package of measures to reduce the deficit of R$ 231 billion in public accounts foreseen in this year’s Budget. For this, he proposed, among other things, changing the rules of judgments of the Board of Tax Appeals (Carf), which aroused intense political mobilization of big businessmen against the idea.
According to Revenue auditor Ricardo Fagundes, adviser to the Fiscal Justice Institute (IJF), the dissatisfaction is linked to around R$ 70 billion a year that these big businessmen will have to pay in taxes to the government if the measure proposed by Haddad is successful. concretize. Today, the Union does not collect these taxes due to a law sanctioned by former President Jair Bolsonaro (PL) benefiting precisely these entrepreneurs.
The Carf is a kind of administrative court (it does not belong to the Judiciary) that mainly judges appeals from companies against assessments by the Federal Revenue Service. For example: an auditor goes to a factory and detects the evasion of a federal tax. Inspection becomes a charge, which can be questioned by the factory at the Revenue itself and, later, at Carf.
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At Carf, this charge is judged by groups of eight or ten counselors. Aiming at a more balanced judgment, in theory, half of the directors of each class are appointed by the federal government, the tax collector, and the other half is composed of directors chosen by business entities, such as the National Confederation of Industry (CNI) –an entity which the factory charged in the example above may be affiliated with.
It turns out that, as each class has an even number of counselors, it is possible that the Carf trials end in a tie. Until 2020, in these cases, the president of the class, who is always appointed by the government, would have a casting vote, the casting vote. That is, if he understood that the charge was correct, it would be released. A contrary understanding by the president would lead to the cancellation of the assessment.
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This is precisely what changed after Bolsonaro sanctioned Law 13.988/20, arising from a Provisional Measure (MP) also edited by him. The new legislation did away with such a casting vote. It stipulated that, in cases of a tie, the taxpayer –the factory, in the case of the example– would emerge victorious from the Carf dispute. The tax collection would be cancelled.
Haddad signed another MP on January 12, resuming the casting vote for Carf. She classified the situation in the body created by Bolsonaro as “a shame”. First, because this rule has no parallel anywhere in the world. Then, because it contradicts consolidated jurisprudence in Brazilian courts.
Reduced collection
According to the accounts of the Ministry of Finance, the resumption of the casting vote for Carf by a councilor appointed by the federal government could lead to an extra collection of up to R$ 35 billion this year alone. The value, according to Fagundes, tends to be higher in the future.
Fagundes is the author of a study on Carf carried out by the IJF. He said that, in 2022 alone, the government failed to collect R$ 25 billion in cases that had a tied trial and ended up favoring taxpayers. This is 20% of the total value of the cases judged: R$ 120 billion.
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In 2022, however, there was a strike at the Federal Revenue. This made Carf’s year atypical, with fewer judgments.
Historically, the body judges cases that, together, involve charging up to R$ 350 billion per year. If the casting vote had not been resumed and 20% of these charges also had tied judgments, the government would have lost around R$70 billion a year.
Currently, there are R$1.2 trillion in administrative appeals on Revenue collections awaiting a final decision. Considering that 20% of these resources could end up with tied judgments at Carf, the requested collection would be R$ 240 billion.
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With less revenue, the government is forced to cut spending and investments. Or to maintain taxation on the poorest by not correcting, for example, the Individual Income Tax table.
Resistance of the big ones
Isac Falcão, president of the National Union of Tax Auditors of the Federal Revenue Service of Brazil (Sindifisco Nacional), stated that this loss of Union revenue benefits a very small number of companies. About 90% of the R$ 25 billion that the government failed to collect in 2022 without Carf’s casting vote were taxes collected from only 26 companies.
“The solution in favor of the defendant does not benefit individuals, small companies, medium-sized companies, or even large companies. Only these 26 mega companies”, said Falcão. “They have political power in the business confederations that appoint CARF directors.”
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Precisely these companies are the ones that put the most pressure to try to modify the MP sent by the new government to Congress during its processing. 120 proposed amendments to the text were presented. The Parliamentary Front for Entrepreneurship (FPE), for example, would like to include in the MP new rules for the appointment of CARF directors.
At the beginning of the month, Minister Haddad received the chairman of the council of the business group Esfera Brasil, João Camargo, to hear his suggestions about Carf. Camargo asked the government that, if the casting vote is really maintained, that companies have a reduction in fines and interest on charges that end with tied judgments.
There is still no clear signal from the government regarding the businessmen’s requests and the amendments to the provisional measure, which remains valid pending a vote.
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Falcão is against the reduction of fines and interest. For him, this will make more companies seek Carf just to postpone payment of charges. He recalled, however, that the strength of businessmen in politics is great. It may be that the government gives in to at least be able to collect taxes.
“It is dysfunctional from an economic point of view (the reduction of interest and fines). But it is less dysfunctional than the current model where you pay nothing,” said Falcão. “It is a question of political evaluation. What exists today is an aberration.”
Editing: Rodrigo Durão Coelho
