“Tax policy is public policy and also needs to be formulated based on evidence.” These words are from Larissa Luzia Longo, a researcher at Insper's Taxation Research Center. At 28, she graduated from Insper's M.Sc. in Public Policy (MPP) and developed a dissertation entitled “What is Tax Complexity and How to Measure It?” and has become one of the pioneers in the discussion in the country.

 

According to Larissa, the central idea of her work, which took over a year to complete, is to analyze the dimensions in which tax complexity manifests itself in Brazil to, from that, define indicators capable of measuring and monitoring tax complexity. “We need to use evidence, use data, to try to combat the problems of tax policies. My work inaugurates a line of research in Brazil, in order to better understand tax complexity and, therefore, combat it more effectively,” she explains.

 

Graduating in Law, Larissa has always been interested in the intersection of the subject with economics and ended up venturing into the tax area in her first professional experiences. “At the beginning of my career, I had a more traditional view of tax advocacy, as I interned at law firms. When I went to work as a researcher at the Center for Fiscal Citizenship and the Insper's Taxation Research Center, my perspective began to change. There is no way to discuss proposals to improve the Brazilian tax system if you restrict yourself to national law. We need to seek economic, accounting, public policy, and international practice knowledge,” she says.

 

For her, addressing the tax issue strictly from a legal perspective did not make sense, as there is interconnection with several areas of knowledge. “I began to realize how broad the subject of taxation is and how limited the legal view is, so I wanted to delve deeper and started the MPP at Insper, as the study of public policies is quite interdisciplinary,” she says.

 

Inspiration for the theme

 

For Larissa, the complexity of Brazilian taxation has always stood out. Some of her research at the Insper's Taxation Research Center aimed to understand the impacts of tax complexity and its correlation with litigation and legal uncertainty, for example.

 

In the most recent presidential elections, Larissa analyzed the government plans of presidential candidates and noticed that most identified complexity in the area, but the simplification proposals were distinct. “This fact turned on a light and made me see that this issue was much talked about but little explored. Everyone realizes that the tax system is complex, but no one can pinpoint exactly what the complexities are so they can be simplified. That's why the presidential candidates' proposals were, in some cases, quite different,” she says.

 

According to her, one of the phases of formulating public policies is identifying problems, so tools can be devised to address these issues later. “We’re at a stage where the problems have not yet been listed. For example, one of the principles of the Tax Reform, passed in 2023, is to simplify the rules, but there are no concrete guidelines and empirical evidence on how this will be done. Identifying the problem, measuring it, and monitoring it are stages of the public policy formulation cycle and should also be implemented in tax policies,” she adds.

 

Therefore, the researcher decided to concentrate efforts and focus on the issue in her dissertation. According to her, the first step was to dive deep into international literature to understand the workings of complexity in tax systems worldwide.

 

“It is an international consensus that tax simplicity is little understood and constantly neglected by tax policy formulators, precisely because it has an abstract and broad character. Furthermore, simplicity combats complexity, which is not easily identifiable because it is multidimensional and multifactorial,” she explains. It was months of in-depth research, followed by several interviews with Brazilian experts on the subject, such as government representatives and taxpayers, lawyers, accountants, and academics, who helped understand the particularities and pain points in each of the dimensions in which tax complexity manifests itself in Brazil.

 

The dimensions of Brazilian tax complexity

 

Due to its multidimensional nature, the international literature reviewed by Larissa usually defines complexity through the dimensions in which tax complexity manifests in each country. Following this idea, based on all the material collected, Larissa defined five dimensions of tax complexity in Brazil: structural, normative, operational, behavioral, and procedural, all related to each other.

 

The dimensions identify manifestations of complexity at each stage of drafting and applying tax norms, influenced by various agents, legislators, the tax administration, and taxpayers. The structural dimension concerns the constitutional design of the tax system, that is, it relates to how the constitution divides tax powers. The normative dimension encompasses qualitative and quantitative criteria of the normative acts. The operational dimension reflects the cost of taxation, whether for the tax administration to collect and audit (administrative cost) or for the taxpayer to comply with their tax obligations (compliance cost). The behavioral dimension contemplates actions by the tax administration and taxpayers that contribute to complexity, related to a lack of governance, transparency, passive posture, or, conversely, aggressive tax planning and tax evasion. Finally, the procedural dimension regards how disputes between the tax administration and taxpayers are resolved, involving aspects related to administrative and judicial contention, as well as the judiciary's role as a reviewer of the tax administration's interpretation.

 

In Larissa's work, she proposes indicators suitable for contributing to future initiatives for measuring and monitoring each of the dimensions of Brazilian tax complexity, as the production of empirical evidence is essential for the effectiveness of policies that aim to address this problem. “The idea is that future studies apply these indicators in an index to measure tax complexity in the Brazilian context. Despite the difficulties related to data availability and harmonization, starting to apply the index in the context of Brazilian state taxes may be interesting due to the sample diversity capable of comparing different taxes and taxing entities,” she explains.

 

She gives examples of the use of these indicators. “The normative dimension can be measured by the number of normative acts that regulate a certain tax and are currently in force, or it can be measured by the number of changes to these normative acts over a certain period,” she says.

 

In the operational dimension, complexity can be measured by the number of ancillary obligations, that is, how many declarations the taxpayer needs to submit to the Tax Authority, in addition to paying the tax. “My idea when defining the indicators was to make these dimensions even more tangible. That way, I hope we have enough empirical evidence to formulate policies that can really promote the simplification of the tax system and, therefore, genuinely combat complexity.”

 

Larissa also points out that a good tax system does not aim solely for simplicity. “Tax policy makers have other goals to pursue, such as efficiency, transparency, equity, and neutrality, which are also important. My idea is not that all tax policies should be purely simple, but that simplicity can be understood and implemented. I want to try to provide subsidies so that tax policymakers can concretely consider simplicity in the trade-off between their different objectives, so they know how much each choice may or may not generate complexity,” she says.

 

The researcher already makes plans to delve deeper into the topic in new formations. “I want to study this in a future Doctoral Program, precisely to try to apply these indicators that I proposed. The idea is to seek to measure and monitor tax complexity to see if the proposals aiming to combat it really fulfill this role,” she concludes.