A new transparency law aims to inform Brazilian citizens about how their tax money is being spent.

Gregory Michener is Assistant Professor of political science and administration at the Fundaçao Getulio Vargas (EBAPE) in Rio de Janeiro.

How do citizens react when, having never known how much tax they pay, they suddenly discover it’s approximately one third of everything they spend?

The odds are that citizens will come to demand better government. Although the Brazilian government may curse the day that Tax Transparency legislation (12.741) was introduced, a new law finally makes good on a constitutional right set out in Article 150 of Brazil’s 1988 Constitution.

The national legislature approved the Tax Transparency law less than a week ago, after 1.56m signatures guaranteed the citizen initiative a place on the legislative agenda.

Big news

This is big news in Brazil.

Although citizens of advanced democracies may take tax transparency for granted, sales taxes and other value-added taxes in most parts of the developing world are still not made transparent.

As I’ve written about in my blog, in the Brazilian newspaper O Globo (reprint), in the Jornal do Comercio, and at the end of my last opinion piece for Al Jazeera, tax transparency ought to produce pressures for better government, greater support for badly-needed tax reform, and a broader understanding between businesses and consumers.

The hope is that tax transparency lends itself to tax-paying-as-an-act-of-conscience, informing citizens about their relationships with government and businesses.

“Tax transparency may be a rude awakening not just in terms of inequities-revealed, but also in terms of administration. In six months, every good or service must carry an ‘approximate’ tally of taxes. “

I recall attending a conference at the Business Association of Rio de Janeiro in which Eliezer Batista, former Mining Minister and father of Brazil’s richest man, excoriated Brazil for having “the taxes of Sweden and the services of Angola”.

Brazil pulls in one of the largest tax receipts in the Americas as a percentage of GDP. That’s the equivalent to $850bn every year, a sum that exceeds the size of Argentina’s economy.

Brazilians pay 30.25 percent in tax to go to the movies, 35 percent on computers and mobile phone services, 31 percent on electricity, 32 percent for lunch or dinner in a restaurant, and 22.3 percent for a plane ticket.

In spite of the outrage many Brazilians may feel, tax transparency will not likely result in a Boston Tea Party-type protest.

The country’s legacy is one of government domination and low levels of education, and citizens are only beginning to question – much less pay attention to – official policy choices.

Rude Awakening

Yet tax transparency may be a particularly rude awakening for Brazil’s giant lower strata.

People who earn less than $10,200 per year do not pay income tax, and because the average salary amounts to just over $8000 per year, income tax receipts are comparatively low.

Government has thus relied heavily on value-added taxes, which economists call “regressive” because they fall hardest on modest income-earners who spend most their money on goods and services.

Given that 50 percent of the Brazilian population accounts for approximately as much income as the top one percent – around 15 percent of GDP – the poor are paying an inordinate share of taxes in Brazil. Once – and if – the lower strata catches on to this skewed tax distribution, a policy shakeup might be inevitable.

However, tax transparency may be a rude awakening not just in terms of inequities-revealed, but also in terms of administration. In six months, every good or service must carry an “approximate” tally of taxes.

But Brazil’s tax code is an alphabet soup, and no less than seven different taxes fall under the purview of the new law, including ICMS, ISS, IPI, IOF, PIS/PASEP, COFINS, CIDE, and tariffs on goods where 20 percent or more of inputs are imported. Acronyms aside, these obligations suggest that the new law may be as burdensome as Brazil’s taxes are complex.

Benefits for Business in Brazil

Some business leaders and government administrators believe that the new transparency legislation imposes undue obligations on small and medium size businesses and may simply confuse consumers.

Yet these arguments generally find little resonance among the business community. It was a business entity, the Sao Paulo Business Association (Associacao de Comércio de Sao Paulo), which gathered the signatures needed to guarantee the project a place on the legislative agenda under Brazil’s “popular initiative” regulation.

“Transparency can be transformative, and transformations in Brazil are well under way.”



The same Association has attempted to simplify the transaction costs of the new law, creating software to calculate value-added taxes and giving it away gratis to other Brazilian states.

Indeed, tax transparency is widely considered to be a major victory for the business community. Consider the effect of value-added taxes on consumer perceptions.

Business owners have long been accused of gouging consumers and underpaying employees. This law may help consumers understand that responsibility for the high cost of Brazilian goods should not fall entirely on the backs of businesses.

Tax transparency may also help expose price-gouging where it is taking place. By eliminating informational asymmetries between consumers and suppliers, tax transparency could help diminish class-based rifts that have long been viewed to contribute to endemic crime and violence. It could also increase pressure for badly-needed tax and labour reforms, which could encourage informal businesses to join the formal sector and ease the costs of doing business in Brazil.

One more front in Brazil’s transparency offensive

Transparency can be transformative, and transformations in Brazil are well under way. Lacking the wealth, military might, or even the population of other world powers, Brazil’s status as a regional leader and global player is increasingly dependent on a reputation for progressive government.

President Dilma Rousseff’s key contribution to this evolving reputation is a remarkable transparency offensive. To be sure, it’s an onerous gamble; she has enacted reforms that are anathema to much of the country’s political and bureaucratic elite.

Yet Rousseff’s cause has found support in soaring popularity and masterful strategy. She committed Brazil to assume a leadership position within the Open Government Partnership, for instance. This move has made it difficult for proponents of ancien régime opacity to get away with weakening governmental transparency reforms.

Rousseff’s transparency policy achievements over the last two years are quickly becoming categorical, applying to the transparency of: Government writ large (a freedom of information law), budgetary operations (transparency and open-data portals), human rights abuses (a Truth and Reconciliation Commission), and political candidacy (the Clean Slate law or ficha limpa).

Responding to a corruption ring recently unearthed within several of Brazil’s regulatory agencies, Rousseff is preparing yet another “clean slate” law as an ethical barrier to entry into the public administration.

The current law on tax transparency adds a new category to this list, and might be considered the political elite’s ultimate form of exposure to public pressure – citizens can now juxtapose the poor services they receive from government with the exorbitant amounts of tax they pay in return.

Gregory Michener is Assistant Professor of political science and administration at the Fundaçao Getulio Vargas (EBAPE) in Rio de Janeiro.