TAXATION AND ECONOMIC FREEDOM: Challenge to undertake in Brazil


Questions about economic freedom and how state interference affects economic development is delicate and complex, but important from the point of view of market analysis, the rule of law, and the characteristics of markets. The impact that taxation and economic freedom have on the achievements of entrepreneurs and public welfare is great or is it appropriate to our current reality?

It is a fact that we live in a politically organized society, based on a rule of law, with rules and legislation for various issues and needs of the nation, including the economy and the functioning of markets.

The legislation deals with the taxes, necessary for the State to be able to afford its expenses and with that, to promote and administer public services for the improvement of general welfare. Taxes, fees and contributions make up the National Tax Code, each with its characteristics and destinations, according to specific legislation or based on the budget approved by the national congress.

However, we can not ignore the economic concept of taxation, since in legal terms, national tax codes are mandatory and do not consider in the body in law, the economic impacts. For economic theory, taxes are necessary for the maintenance of the public machine (state), which in turn has the role of providing and administering public welfare. Therefore, it is a source of revenue for an organism that produces nothing but has running costs. Therefore, we understand that if the state is not lean and efficient in its attributions, taxes will impact more and more on producers and consumers.

Brazil is a complex country with regard to tax issues. Currently, taxation takes place in three spheres (federal, state and municipal) that impact business operations and individuals. There are currently 93 active taxes in Brazil, divided among taxes, contributions and fees. According to the IBPT study cited above, Brazil has a tax burden similar to that of countries with high economic and social development such as Denmark, Sweden, Austria and Norway. Still citing data, in 2014 the Brazilian tax burden corresponded to 32.4% of GDP, a number almost identical to the United Kingdom. Chile, for its part, has 19.8% of GDP in tax burden, as shown in the graph below.

But it should be noted that a necessary condition for development is freedom. Freedom to allocate resources, human, financial or natural, in the best way possible. A free environment is challenging and allows agents to participate fully in relation to the right of choice.

Once the state control mechanisms exist, the level of freedom in the economy decreases, and the agents have a restriction on their choices, interfering in the degree of efficiency desired for a given action. Analyzing the society, it is possible to doubt that there can be a full application of a situation in which economic freedom is mandatory.

Entrepreneurship is one of the activities that we have heard most in the 21st century. Innovation, whether disruptive or evolutionary, is the goal of society, which increasingly discovers ways of meeting their needs. In this regard, tax and economic freedom issues play a key role in fostering innovation and increasing development.

Starting a business in Brazil is complicated. Close, more so. However, we will understand a little of this complication by talking about bureaucratic issues. It is necessary to separate an enormous documentation (certified copies, recognition of firm and etc.) and that goes through the screening of several organs, besides the inspections and approvals. We are speaking, in practice, of at least three months for a company that provides services. But if we talk about a furniture factory, or a food factory, that time increases, because the individual (entrepreneur candidate) will still need environmental and sanitary licenses.

Entrepreneurs are visionaries. and have an incredible ability to spot market failures, repressed demands - or even create demands, like Steve Jobs with the Ipad - and innovate over what is presented by their competitors. However, innovating is costly and risky, and needs investments. No agent seeks an innovation and a market space without glimpses of returns on their investments.

The market economy is not a simple game to be played, and therefore requires a lot of attention from all players involved. It is remarkable that evolution walks along with freedom. Freedom is a shorter path to development, and to revise taxation - given its enormous impacts on productive efficiency - is mandated to resume economic growth and improve public well-being. It is necessary to have controls, since society is organized in this way, but minimum bureaucracy and the greatest degree of economic freedom possible.



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