“This is too difficult for a mathematician. It takes a philosopher. The hardest thing in the world to understand is the income tax” – said Albert Einstein.
Tax Law is one of the branches of law that covers the whole of society, since, to a greater or lesser extent, everyone has to pay their taxes at some time in their lives. However, it is easy to understand that there is a widespread perception in many societies that taxes should not exist, or at least should not be levied on certain realities – which is justified by the existence of a clear tax illiteracy. But what is the reason for all of this? If taxes constitute essential revenue for dealing with public expenditure, why do they seem to be so misunderstood?
Firstly, and leaving aside any kind of political consideration, the allocation of tax revenues to public expenditure does not always acquire a general consensus in societies worldwide, and there are those who consider that there is weak public investment. For example, those who consider that it is unreasonable for a State to provide a public health service, where the patient has to wait, at times, more than 10 hours to be assisted, have no legitimacy to question why there is a considerable gap between the taxes paid and the guarantees of the Welfare State?
Secondly, it is undeniable that, notwithstanding the necessity to collect tax revenue in view of the high levels of public expenditure, there are realities whose incidence of tax is very difficult for citizens to conceive. Consider, for example, the case of Property Tax (“Imposto Municipal sobre Imóveis”), which is levied on the rural and/or urban property of taxpayers. In this case, having acquired a certain property and paid the respective price in a private transaction, without any incentive or intervention from the State, it is not difficult to understand why there should be an annual tax whose taxable event corresponds – solely and exclusively for what is relevant here – to the ownership of the property?
Thirdly, it should be noted that it is not unusual to find tax legislation that is incomplete, poorly articulated or with concepts that are difficult to integrate and understand. The complexity and imprecision of tax legislation makes any type of tax system incomprehensible, not only at the level of the concepts used by the legislator but also at the level of the mechanics of the various types of tax. For example, are the concepts of local surtax (“derrama”) or payment on account (“pagamento por conta”), in terms of corporate income tax, comprehensible to an ordinary citizen?
Fourthly, it seems undeniable that the constant legislative mutation also does not favour the understanding of the tax system either. Although we do not ignore the fact that tax legislation needs to change due to the need to acquire a greater or lesser level of public revenue, the European Union impositions or the need to guarantee better ways of fulfilling tax obligations, we are of the opinion that tax legislation should acquire greater temporal stability, so that it may be easier to understand by the citizens. For example, are all the 54 amendments/ rectifications made to the General Tax Law (“Lei Geral Tributária”), over a time horizon of about 20 years, justified?
Having presented the four essential reasons which we believe are at the base of any misunderstanding of the tax system, it is necessary to put forward some solutions:
- There could be advanced a policy of greater transparency and rigour in the allocation of tax revenue to the State’s expenditure needs and greater concern to ensure the social functions of the State provided for in the Constitution of the Portuguese Republic.
- A policy of tax psychology and education could be encouraged in favour of the construction of fiscal citizenship – starting with the younger generations, in the school context – explaining the scope and motivations of taxation, as well as the possible mechanics of the tax system.
- There could be promoted the existence of simplified and stable tax rules that allow the citizen to find space for understanding.
Thus, we consider that, in the times in which we currently live, it is essential to strongly fight fiscal illiteracy, giving tools so that all citizens may understand the tax system. If this is the case, we will be completely certain that the levels of tax revenue collected will increase and the possibilities of disputes with the Tax Authority and intentions of fraud or tax evasion will decrease. Because it seems undeniable to us that citizens are already close to taxes; it will now be essential that taxes are brought closer to citizens!
Francisco Ludovino Reis