Tax Principles
Tax principles are fundamental concepts that help and guide governments to design and implement laws. They also protect the taxpayers.
The tax Principles in Brazil are addressed in the Brazilian Constitution and the Tax Code in articles 145, 150 and 153:
Article 145
- Ability-to-Pay Principle: Whenever possible, the government should set taxes according to the ability-to-pay-principle, in other words, taxpayers who have more resources and earn higher incomes, should pay more taxes.
Article 150
- Legality: Congressional approval is required to create or change any tax. The government—federal, state or local—cannot collect any tax unless the law is approved and published.
- Equity: Taxes must be charged equally among all individuals or entities in similar economic circumstances.
- Retroactive: It is forbidden to charge or collect any taxes for actions performed by the taxpayer before the law was published.
- Effective fiscal year: Laws that modify the tax or increase the tax basis or rate are only applicable in the following fiscal year.
- 90-day delay: Laws that modify the tax or increase the tax basis or rate are only applicable 90 days after they are published.
- Confiscation: The tax charged must be reasonable. If someone has a house of $ 100,000 the tax authorities cannot charge $100,000 in property taxes.
- Freedom of movement: It is forbidden to create taxes that will prevent the right of individuals to travel from place to place within Brazil.
Article 153
- Selectivity: Essential items have lower tax rates than non-essential items.
- Non-cumulative: It is allowed to consider the tax on the purchase invoices as input tax and the sum can be deducted from their own VAT liability. The difference between output tax and input tax is paid to the government, or you can carry it over in the case of negative liability (more input tax than output tax).
- Progressive tax: The tax rate in progressive tax increases as the taxable amount increases. Therefore, individuals and companies which make more money pay a larger percentage of taxes.
There are other tax principles in Brazil. The ideal scenario would be if all principles were applicable to all taxes. However, there some exceptions, so some taxes do not follow one or some principles listed above.
Taxpayers must have a comprehensive understanding of tax principles in order to defend themselves in court and against tax authorities.
Written by Thiago M. Silveira
Thiago M. Silveira is a Brazilian Chartered Certified Accountant (CRC) with more than 10 years of success in the accounting field, with insightful understanding in all aspects of accounting, financial reports preparation, local taxes and compliance in Brazil.
