Opinion: Brazil’s CPMF Tax Resuscitated?

Opinion, by Michael Royster

RIO DE JANEIRO, BRAZIL – There is a Brazilian saying that goes “Farinha pouca? Meu pirão primeiro!” That translates, roughly, into “Not enough flour? My gravy comes first!” Everybody in Brazil knows there is a lot less flour than there was six months ago, so everybody wants their gravy first. Sadly, the gravy train must pass through a station called Congress.

Everyone is clamoring for more money. Vice President Michel Temer, who had promised Congressmen money for their pet projects in order to muster support for Dilma’s austerity program, gave up his position as go-between, because he couldn’t make good on his promises. Dilma, through Finance Minister Levy, had turned off the taps for cash flow problems. No more gravy.

In an ill-fated move, Levy said he wasn’t going to pay out the first half of the thirteenth month payment to social security retirees in September, for cash flow reasons. No more gravy.

Levy had previously tried to eliminate payroll tax breaks granted to a very few hugely profitable basic industries, such as automobiles and white goods, that hire tens of thousands of workers. No more gravy.

But retirees and workers vote, industry supports campaigns; Congress threatened to revolt. Dilma, in the end, overruled Levy – gravy for everyone!

The obvious answer to a gravy-hungry Congress spending cash is to find a way to create cash. Levy just floated the idea of re-instituting the CPMF, nicknamed the “tax on checks”. It was first enacted in 1993 and expired in 2007.

Under CPMF, banks effectively withhold 0.38 percent of every withdrawal from a bank account, then pay the withholding to the Treasury. This makes it a cheap and efficient way to get tax revenue – banks do the work, taxpayers don’t file returns, there’s no other documentation. There are no loopholes, no exceptions, no fuss, no muss, no worry.

In terms of public policy, the greatest benefit of CPMF is that it taxes both the formal and the informal economy. “Informal” means “off books” which means “tax evasion” which is “illegal”. Estimates vary, but many say that at least one-third of the Brazilian economy is “informal”.

Because Brazil has very strict bank secrecy laws, and because Brazilian banks pay high interest on deposits, everybody, including crooks, tax cheats and corrupt politicians, puts their money in banks. Nobody hides money under mattresses, and everyone with a bank account is taxed.

So, what’s not to like? Crooks and swindlers don’t like it because they know the government has the list of every single account from which the tax was withheld – the banks have to supply data to the taxman, to show compliance. Many suspect that the 2007 congressional vote to abolish CPMF was the work of corrupt politicians to make it more difficult to find where they’d stashed their money.

Industry moguls all claim they have good reason to hate it: taxing the production chain allegedly adds multiples of 0.38 percent to the cost of goods sold. To the Curmudgeon, that seems a small price to pay for getting at all the illegal money floating around Brazil, and finding some money to finance the recovery Brazil’s foundering economy truly needs.

But Congress will kowtow, as always, to industry bosses and CPMF will not return. That’s a shame, because Congress will continue to squabble over who gets the gravy first.

The Curmudgeon loves gravy and trains, but not mixed.