30 years of the Constitution: national tax system and the necessary reform in consumption taxation

BY EDUARDO MANEIRA AND DANIEL SERRA LIMA

INTRODUCTION

On October 5, 2018, our Constitution turned 30 years old. It's a birthday that deserves celebration! The National Constituent Assembly elected in 1986 and installed at the beginning of 1987 carried out monumental work for Brazilian democracy, enabling the transition from the military regime to a democratic regime. As of the 1988 Constitution, Brazil could once again be called a Democratic State of Law.

The National Tax System contemplated in the 1988 Constitution did not represent a significant change in its structure, when compared to the Constitutional Amendment no. 18/1965, the Constitution of 1967, the Constitutional Amendment no. 1/1969, as well as in relation to the National Tax Code, Law no.

The most significant changes, unfortunately, were to reinforce a historical anomaly in our system, which is to grant Member States the power to tax consumption through ICMS. In the previous Constitution, the States had the ICM and, as of the 1988 Constitution, they began to have the ICMS, which, in addition to all the fields of incidence of the old tax, began to cover communication services, transport and the special Union taxes levied on operations relating to fuels, lubricants, electrical energy and minerals.

By the way, a great opportunity was lost in 1965, when an effort was effectively made to rationalize the tax system, which culminated in EC no. 18/65 and soon after, in the CTN, to transfer consumption taxation to the Union, concentrated in a single tax. But even the military regime did not have the political strength to break with the tradition in which Member States taxed the trade of goods through the Sales and Consignment Tax – IVC, which became ICM; the Union, industrialized goods (former consumption tax, current IPI); and municipalities, services (former tax on industries and professions), current ISS.

Structured to meet the federative form of the State, our system seeks to divide tax powers between the Union, States, Federal District and Municipalities and limit the exercise of these powers through constitutional tax principles and immunities.

Although the 30 years of the Constitution deserve applause, it is certain that everyone says they want tax reform. Public Treasury in general, taxpayers, legal entities and individuals. Although there is a national consensus around the need to reform the tax system, there is enormous conflict surrounding the proposals. The Union says it wants reform, but will not give up a single cent of its extraordinary revenue; the States and Municipalities want it to raise more money; taxpayers, to pay less taxes.

With this disparity of interests, the discussion drags on in the National Congress. So what tax reform would we be dealing with and what are the critical points of our system that deserve change? Furthermore, what is the legal framework to be observed when carrying out tax reform?

When we talk about tax reform, we are obviously talking about the reform of the National Tax System, in the Constitution. Therefore, the first point to be observed are the limits established in art. 60, § 4, of the Constitution, to the Derived Constituent Power.

In other words, tax reform must pay special attention to the federative form of the State, the separation of powers, the democratic regime and individual rights and guarantees. Therefore, we know that the constitutional tax principles that are guarantees for the citizen-taxpayer and, therefore, permanent clauses, in the understanding of the Federal Supreme Court in ADI 939 (BRASIL, 1994b), must be excluded. Furthermore, any change in tax jurisdiction must respect the federative form of the State.

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POR EDUARDO MANEIRA E DANIEL SERRA LIMA