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2015 TOCICO International Conference
© 2015 TOCICO. All Rights Reserved.
A plan to boost Brazil’s economy by
simplifying its tax system
by Miguel Abuhab
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Goals
2
Boost economy
Leverage of the formal economy
Simplify the tax system
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Overall
3
A first glance over the
Brazilian economy
landscape would show
several problems
In a holistic approach we identify the
undesirable effects that jeopardizes the
country’s economic development
...However,
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Overall
4
Local Optimum
Face the problem under a
holistic approach
Global Optima
Deals with the Undesirable
Effects one by one
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Undesirable Effects
5
Increase of
taxes rate
Tax incomes
reduction
High cost of
tax collectionTax avoidanceFiscal DisputeExcess of lawsuits
Expensive overhead
to the taxpayer
PenaltiesCorruptionSMB Tax
SystemTax RefinanceInspectionSide
ObligationsTax Substitution
Informal
Economy
DefaultWitholding
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
…When we deal with each problem in
isolation we deal with the symptoms
and not the real cause.
Theory of Constraints
6
In order to improve the overall we don't have to improve everything
As long as the real cause is untouched
the symptoms/problems will not go
away and new ones will be created.
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Simplify means to reduce the numbers of touchpoints needed to impact the whole system
Theory of Constraints
7
7 touchpoints 1 touchpoint
The complexity of a system is measured by the number of points that need to be touched
to impact the whole system
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Most of the current business rules were
created under a technology constraint
Once the constraint was removed, the
business rules remained the same
Orthodoxy
8
Orthodoxy is everything we do, we don´t know why we do, but we keep doing
An orthodoxy arises when despite of the end of the technology constraint, there´s no
evolution in terms of behavior and the business rule set during the technology
constraint remains untouched.
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
A Classic Case of Orthodoxy
9
Hotel
CHECK-IN
12H
CHECK-OUT
12H
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Orthodoxy
10
Goods Goods were used
for tax payment
Technology constraint
Money
Technology constraint removed Taxes are payed in
money
2015 TOCICO International Conference
© 2015 TOCICO. All Rights Reserved.
UNDERSTANDING THE PLAN
11
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Conflict
12
to
to
to
In order to ensure the
country`s competitiveness we
need to do the tax reform
Follow the legislation
Do not do the tax
reform
Do the tax reform
Ensure country
competitiveness
Boost economy
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
…The taxes must be
calculated and collected
based on the taxpayer
initiative
Wrong Assumption
Because we erroneously believe that...
13
…The taxes
collection must be
based on the goods
circulation.
In order to ensure the country`s
competitiveness we need to do the tax reform
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Current technology allows taxes to be calculated
based on the money circulation and collected
through its flow within the banking system
Breaking the Wrong Assumption
14
…The taxes
collection must be
based on the goods
circulation.
…The taxes must be
calculated and collected
based on the taxpayer
initiative
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Tax is declaratory
Tax collection depends
on taxpayer initiative
Bank transactions have
no accounting support
High complexity and
cost to the taxpayer
corruption
tax substitution side obligations
withholding default
inspection
assessment
fiscal war tax avoidanceexcess of lawsuits
informal economy
SMB Tax SystemTax Refinance
high cost of tax collection
Current Reality Tree
15
Increase of taxes rate
tax incomes reduction
Unbalanced tax benefits
are granted by States
Undesired effects
Root cause
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Tax is declaratory
Taxes start to be
automatically calculated
by the State
Unbalanced tax benefits
are granted by States
Fiscal benefits start to be
equally granted by the
States
Tax collection depends of
taxpayer initiative
Bank transactions have
no accounting support
High complexity and
cost to the taxpayer
corruption
tax substitution side obligations
withholding default
Inspection
Assessments
Fiscal War Tax Avoidanceexcess of lawsuits
informal economy
SMB Tax SystemTax Refinance
high cost of tax collection
Placing injections on the root causes
16
Taxes start to be
automatically collected by
the banking system
Banking transactions start
to have accounting
support
Increase of taxes rate
Tax incomes reduction
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Taxes are automatically
calculated by the State
Banking transactions will
start to have accounting
support
Future Reality Tree
17
Drastic reduction of
declaration costs for
taxpayers
lowering cost in the judiciary
power
Drastic reduction of the tax
assessment numbers
Drastic reductio of
corruption
significant increase of taxes
collection incomes
Drastic reduction of the tax
inspection costs
Drastic reduction of the
default risk
End of Tax
avoidance
End of Fiscal Dispute
Drastic reduction of the
informal economy
Drastic reduction of
withholding
Taxes are automatically
collected by the banking
system
Fiscal benefits start to be
equally granted by the
States
2015 TOCICO International Conference
© 2015 TOCICO. All Rights Reserved.
IMPLEMENTING THE PLAN
18
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
The Strategy
VAT – “Value Added Tax” to be collected by the banking system on a cash basis
 All banking transactions among companies must contain its taxpayers identification number
 The companies will be credited when paying their suppliers and will be deducted when they
receive from their customers. These transactions will be automatically handled by the banking
system.
 When a company receives a bank deposit regarding a commercial transaction, either products
or services, the tax payment will be automatically collected by the banking system, observing
that the total tax amount due to be paid must be deducted from the company's entry credit
and later on handed to the clearing house
 The effect is like having a “Cash Added Tax”
19
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
The Strategy
VAT – “Value Added Tax” to be collected by the banking system on a cash basis
 The tax collection regarding the sales that are made to end consumers will be collected once
the payment services providers place a deposit at the taxpayer's bank account
 The tax payment regarding the sales on cash will be collected based on the fiscal coupon
 The tax incomes will be daily collected through the banking system and will be transferred to
the government’s treasury
 Only the exceptions must be reported by the taxpayers
 The tax is non-cumulative
20
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Tax collection on cash basis
21
Industry Manufacturer Retailer End Consumer
e.g. VAT: 1%
$100 $1000$500
DB: $ 1
*EC: $ 0
DB: $ 5
*EC: $ 1
DB: $ 10
*EC: $ 5
VAT: $5
* Entry Credit (Accounting)
VAT due to pay: $4
VAT: $1
VAT due to pay: $1
VAT: $10
VAT due to pay: $5
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Tactics
Technological implementations
 All banking transactions among companies must contain its taxpayers
identification number (CNPJ at Brazil)
 Mandatory inclusion of the invoice number in all electronic billing
messages (Financial EDI) among companies and banks.
22
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Conflict
23
to
to
to
In order to ensure the
country`s competitiveness we
need to do the tax reform
Follow the legislation
Do not do the tax
reform
Do the tax reform
Ensure country
competitiveness
Boost economy
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Eliminating the conflict
24
to to
Follow the legislation
Do not do the tax
reform
Ensure country
competitiveness
Boost economy
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Solutions
25
The current legislation remains the same
The decision to implement the plan lies in
the Executive Power
Do not do the tax
reform
and
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Quote
“It always seems
impossible until its done.”
Nelson Mandela
©2015 TOCICO. All Rights Reserved.
2015 TOCICO International Conference
Thank you!
Miguel Abuhab holds a mechanical engineer bachelor's degree from
ITA - Brazilian Air Force Institute of Technology, rated as one of the
top and most prestigious engineering schools in Brazil. Miguel’s first
endeavor as an entrepreneur ended up to be the biggest ERP
company in Brazil, implementing fiscal systems at over the 4,000
companies.
Miguel also founded NeoGrid - A Global Supply Chain Management
Systems provider, being awarded by FINEP, the Brazilian
Government Innovation Foundation, as one of the most innovative
companies for two years in a row. NeoGrid also featured at
Gartner’s Magic Quadrant in 2014, for its deep understanding of the
Brazilian supply chain landscape and its vast portfolio of Internet
Brokerage solutions covering banks, industry, retailers and fiscal
transactions within the Brazilian Tax System.
27
Miguel Abuhab
miguel@abuhab.com
www.miguelabuhab.com
TOC-ICO, Theory of Constraints - International
Certification Organization Co Founder

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Boosting brazil’s economy br miguel abuhab at TOCICO

  • 1. 2015 TOCICO International Conference © 2015 TOCICO. All Rights Reserved. A plan to boost Brazil’s economy by simplifying its tax system by Miguel Abuhab
  • 2. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Goals 2 Boost economy Leverage of the formal economy Simplify the tax system
  • 3. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Overall 3 A first glance over the Brazilian economy landscape would show several problems In a holistic approach we identify the undesirable effects that jeopardizes the country’s economic development ...However,
  • 4. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Overall 4 Local Optimum Face the problem under a holistic approach Global Optima Deals with the Undesirable Effects one by one
  • 5. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Undesirable Effects 5 Increase of taxes rate Tax incomes reduction High cost of tax collectionTax avoidanceFiscal DisputeExcess of lawsuits Expensive overhead to the taxpayer PenaltiesCorruptionSMB Tax SystemTax RefinanceInspectionSide ObligationsTax Substitution Informal Economy DefaultWitholding
  • 6. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference …When we deal with each problem in isolation we deal with the symptoms and not the real cause. Theory of Constraints 6 In order to improve the overall we don't have to improve everything As long as the real cause is untouched the symptoms/problems will not go away and new ones will be created.
  • 7. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Simplify means to reduce the numbers of touchpoints needed to impact the whole system Theory of Constraints 7 7 touchpoints 1 touchpoint The complexity of a system is measured by the number of points that need to be touched to impact the whole system
  • 8. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Most of the current business rules were created under a technology constraint Once the constraint was removed, the business rules remained the same Orthodoxy 8 Orthodoxy is everything we do, we don´t know why we do, but we keep doing An orthodoxy arises when despite of the end of the technology constraint, there´s no evolution in terms of behavior and the business rule set during the technology constraint remains untouched.
  • 9. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference A Classic Case of Orthodoxy 9 Hotel CHECK-IN 12H CHECK-OUT 12H
  • 10. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Orthodoxy 10 Goods Goods were used for tax payment Technology constraint Money Technology constraint removed Taxes are payed in money
  • 11. 2015 TOCICO International Conference © 2015 TOCICO. All Rights Reserved. UNDERSTANDING THE PLAN 11
  • 12. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Conflict 12 to to to In order to ensure the country`s competitiveness we need to do the tax reform Follow the legislation Do not do the tax reform Do the tax reform Ensure country competitiveness Boost economy
  • 13. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference …The taxes must be calculated and collected based on the taxpayer initiative Wrong Assumption Because we erroneously believe that... 13 …The taxes collection must be based on the goods circulation. In order to ensure the country`s competitiveness we need to do the tax reform
  • 14. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Current technology allows taxes to be calculated based on the money circulation and collected through its flow within the banking system Breaking the Wrong Assumption 14 …The taxes collection must be based on the goods circulation. …The taxes must be calculated and collected based on the taxpayer initiative
  • 15. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Tax is declaratory Tax collection depends on taxpayer initiative Bank transactions have no accounting support High complexity and cost to the taxpayer corruption tax substitution side obligations withholding default inspection assessment fiscal war tax avoidanceexcess of lawsuits informal economy SMB Tax SystemTax Refinance high cost of tax collection Current Reality Tree 15 Increase of taxes rate tax incomes reduction Unbalanced tax benefits are granted by States Undesired effects Root cause
  • 16. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Tax is declaratory Taxes start to be automatically calculated by the State Unbalanced tax benefits are granted by States Fiscal benefits start to be equally granted by the States Tax collection depends of taxpayer initiative Bank transactions have no accounting support High complexity and cost to the taxpayer corruption tax substitution side obligations withholding default Inspection Assessments Fiscal War Tax Avoidanceexcess of lawsuits informal economy SMB Tax SystemTax Refinance high cost of tax collection Placing injections on the root causes 16 Taxes start to be automatically collected by the banking system Banking transactions start to have accounting support Increase of taxes rate Tax incomes reduction
  • 17. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Taxes are automatically calculated by the State Banking transactions will start to have accounting support Future Reality Tree 17 Drastic reduction of declaration costs for taxpayers lowering cost in the judiciary power Drastic reduction of the tax assessment numbers Drastic reductio of corruption significant increase of taxes collection incomes Drastic reduction of the tax inspection costs Drastic reduction of the default risk End of Tax avoidance End of Fiscal Dispute Drastic reduction of the informal economy Drastic reduction of withholding Taxes are automatically collected by the banking system Fiscal benefits start to be equally granted by the States
  • 18. 2015 TOCICO International Conference © 2015 TOCICO. All Rights Reserved. IMPLEMENTING THE PLAN 18
  • 19. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference The Strategy VAT – “Value Added Tax” to be collected by the banking system on a cash basis  All banking transactions among companies must contain its taxpayers identification number  The companies will be credited when paying their suppliers and will be deducted when they receive from their customers. These transactions will be automatically handled by the banking system.  When a company receives a bank deposit regarding a commercial transaction, either products or services, the tax payment will be automatically collected by the banking system, observing that the total tax amount due to be paid must be deducted from the company's entry credit and later on handed to the clearing house  The effect is like having a “Cash Added Tax” 19
  • 20. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference The Strategy VAT – “Value Added Tax” to be collected by the banking system on a cash basis  The tax collection regarding the sales that are made to end consumers will be collected once the payment services providers place a deposit at the taxpayer's bank account  The tax payment regarding the sales on cash will be collected based on the fiscal coupon  The tax incomes will be daily collected through the banking system and will be transferred to the government’s treasury  Only the exceptions must be reported by the taxpayers  The tax is non-cumulative 20
  • 21. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Tax collection on cash basis 21 Industry Manufacturer Retailer End Consumer e.g. VAT: 1% $100 $1000$500 DB: $ 1 *EC: $ 0 DB: $ 5 *EC: $ 1 DB: $ 10 *EC: $ 5 VAT: $5 * Entry Credit (Accounting) VAT due to pay: $4 VAT: $1 VAT due to pay: $1 VAT: $10 VAT due to pay: $5
  • 22. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Tactics Technological implementations  All banking transactions among companies must contain its taxpayers identification number (CNPJ at Brazil)  Mandatory inclusion of the invoice number in all electronic billing messages (Financial EDI) among companies and banks. 22
  • 23. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Conflict 23 to to to In order to ensure the country`s competitiveness we need to do the tax reform Follow the legislation Do not do the tax reform Do the tax reform Ensure country competitiveness Boost economy
  • 24. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Eliminating the conflict 24 to to Follow the legislation Do not do the tax reform Ensure country competitiveness Boost economy
  • 25. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Solutions 25 The current legislation remains the same The decision to implement the plan lies in the Executive Power Do not do the tax reform and
  • 26. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Quote “It always seems impossible until its done.” Nelson Mandela
  • 27. ©2015 TOCICO. All Rights Reserved. 2015 TOCICO International Conference Thank you! Miguel Abuhab holds a mechanical engineer bachelor's degree from ITA - Brazilian Air Force Institute of Technology, rated as one of the top and most prestigious engineering schools in Brazil. Miguel’s first endeavor as an entrepreneur ended up to be the biggest ERP company in Brazil, implementing fiscal systems at over the 4,000 companies. Miguel also founded NeoGrid - A Global Supply Chain Management Systems provider, being awarded by FINEP, the Brazilian Government Innovation Foundation, as one of the most innovative companies for two years in a row. NeoGrid also featured at Gartner’s Magic Quadrant in 2014, for its deep understanding of the Brazilian supply chain landscape and its vast portfolio of Internet Brokerage solutions covering banks, industry, retailers and fiscal transactions within the Brazilian Tax System. 27 Miguel Abuhab miguel@abuhab.com www.miguelabuhab.com TOC-ICO, Theory of Constraints - International Certification Organization Co Founder