By PAUL CONSTANCE and DAN DROSDOFF,Salvador,Brazil

But strangest of all is the bright red zero on the electronic cue indicator above the main desk: evidence that no one is standing in line, waiting to be served.

It's not for lack of business. People pop into the office, known as a SAC (for the Portuguese initials of citizen service center) throughout the day, usually carrying some kind of form. They pay taxes and take care of a variety of other official obligations--from paying utility bills to obtaining a national id card. Most transactions require just a few minutes to complete, and many forms can be filled out electronically at computer terminals set aside for customers.

Customers? The very idea of customer-oriented tax service can prompt ironic smiles and caustic remarks in many countries. But the popularity of sac centers in this Northeastern state shows that in Brazil, the concept is no longer a joke. In fact, Bahia is just one of several Brazilian states that are turning conventional wisdom about taxes and public finances on its head.

Tangled legacy. "Paying taxes is never pleasant, and people have a natural reticence about it," says Waldir Gomes Junior, president of the Accountants Syndicate of São Paulo and an outspoken private sector supporter of tax system reform in that state. Such understatement is not usually in evidence when Brazilians talk about taxes. There are all sorts of popular complaints, but the truth is that the tax system in Brazil, as in most countries, is a victim of its past. Laws, regulations and procedures introduced over the years by different governments have accumulated to produce a sometimes Byzantine process. The sheer complexity of the tax code, combined with its dependence on dozens of paper forms that must be processed in separate government offices, has tended to alienate taxpayers at best, and to encourage inefficiency and abuse at worst.

"We were using a bureaucratic model based in the last century," says Yoshiaki Nakano, secretary of finance for the highly industrialized state of São Paulo and one of the most zealous advocates of tax system modernization. "In the past we would get 600,000 to 800,000 returns each year that were incorrectly filled out. Somebody who owed 120,000 reais [the Brazilian currency] would write down 120 reais or 12. Everything had to be audited and corrected by hand, and there was all kinds of fraud."

João Alberto Rodrigues Capiberibe, governor of the state of Amapá in Brazil's Amazonian region, says citizens were somewhat justified in their reluctance to comply with the law. "The [old system] had two characteristics that harmed the taxpayer: a selective form of collection, in which political interests and special privileges predominated, and the way money was spent, which was even worse because controls were very weak."

No more Band-Aids. Such candid assessments are typical among Brazilian governors and senior state finance officials, and they explain the emergence of a strong consensus that the tax system must be reformed. In 1996 the federal government launched a large program, partly financed by a $78 million IDB loan, to modernize the Federal Revenue Secretariat. Over the last few years several Brazilian states have undertaken similar efforts on their own initiative. And in 1997, all 26 Brazilian states joined with the Federal District in a coordinated program to improve revenue collection, financial management and fiscal information sharing across the board.

This $1 billion Fiscal Administration Program (PNAFE, for its Portuguese initials), half of which is being financed through a $500 million IDB loan, is but one small front in Brazil's broader campaign to consolidate economic reforms that have revitalized its economy in recent years. But it is a particularly crucial front. Like most Latin American and Caribbean countries, Brazil is working to lower fiscal deficits at the federal, state and municipal levels in order to reduce its dependence on external financing and stimulate economic growth. As always, this task boils down to the politically demanding art of increasing revenues without cutting essential public services.

While the need for belt-tightening has resulted in heated debates about public spending in general, it has also focused attention on those charged with collecting taxes and administering public funds. Is an appropriate amount of revenue being collected for each kind of tax, in each jurisdiction? Are the funds being correctly reported? Is revenue being allocated and spent efficiently? And perhaps most importantly, is the entire tax collection and public spending process being conducted in a way that inspires public confidence and compliance with the law?

These sorts of questions have bedeviled governments for centuries, and Brazil doesn't pretend to have easy answers. Indeed, there have been other campaigns to improve the tax system in Brazil. But unlike previous top-down efforts, the current one is designed to leverage proven innovations hatched at the state level by government officials who were not satisfied with the status quo.

Tax and mend. Heliana Guimarães Diniz is one such official. Equipped with a masters degree in tax administration, she spent 20 years working as a fiscal inspector for the state of Bahia before being named chief of the state tax inspection office at Calçada, a district in the capital city of Salvador, in 1994. During those years she had plenty of time to notice what was wrong with the tax system--and to think about ways it could be improved. "The bureaucracy was very extensive," she recalls. "We had too many papers and we had to ask for many copies of each document from each citizen who wanted to get things done."

By the time Diniz was named chief, Bahia's finance secretariat was headed by Albérico Machado Mascarenhas, an avowed reformer who was spearheading a wholesale effort to automate and modernize the state tax system. Diniz sent a list of suggestions for efficiency improvements to Mascarenhas's office, and he encouraged her to join other officials on his staff who were already conducting a detailed analysis of each step in the tax collecting and management process. In the end, they found dozens of ways that the system could be streamlined and simplified.

Some seem obvious in retrospect. Instead of asking taxpayers to go through an obstacle course of separate offices, each of which provided only one of a long list of required documents or official stamps, Bahia officials found a way to locate nearly all the necessary procedures in a single office. Instead of storing all relevant records in scattered government archives, they let taxpayers keep the documents themselves. Starting last May, the finance secretariat also began placing tax information and interactive forms on the Internet, so that customers at tax offices could use computers to quickly fill out and print required documents.

"Now taxpayers just come to our office, show us their papers, and we take care of everything and give it right back," says Diniz. "We stamp it, sign it, and that's it--they don't have to go from one place to another. They don't have to come back two, three, four or five times to get a solution."

These kinds of improvements in customer service can yield concrete dividends. Consider the tax on motor vehicles in São Paulo--an important source of revenue in a state with Brazil's highest concentration of cars and trucks. Three years ago, when Samuel Abel Brasil, a 29-year-old São Paulo truck driver, needed to renew his license, he had to pay the equivalent of $10 to a despachante (an agent specialized in processing official paperwork) and wait up to 10 days, in addition to paying the $34 tax on the renewal.

Today, Brasil and other vehicle owners can step into one of several aptly named Poupo Tempo ("Save Time") offices run by São Paulo's ministry of finance. Using a computerized license-processing system, clerks process the renewals in an average of 10 minutes, eliminating the need for a despachante and saving consumers the additional fees. City finance officials believe the improved service and lower cost contributed to tripling São Paulo's car tax collections in the last two years; the tax now brings in some $1.8 billion in annual revenue.

Convinced that simplicity and convenience can help increase other kinds of collections as well, São Paulo tax officials under Yoshiaki Nakano have embarked on an ambitious effort to automate as many aspects of the tax system as possible. When businesses file monthly declarations of the value-added tax that accounts for the bulk of state revenues, for example, they must do so on computer diskettes instead of paper. This apparently trivial requirement has resulted in huge savings thanks to reduced errors and quicker processing, according to Nakano.

Nakano's staff is also betting that the Internet will eventually become the most popular way to deal with tax obligations (see "There are no lines in cyberspace," in this issue). He recently opened the Posto Fiscal Eletrônico, an Internet service that aims to replicate virtually all the services offered by São Paulo's traditional tax offices. When fully operational, the posto will include detailed instructions for filing taxes, news on the latest tax laws, interactive forms and various on-line help features. For people who don't have a computer at work or home, the finance secretariat is installing public computers at its brick-and-mortar tax offices (See "A solution to chaos").

Are these changes opposed by commercial accountants who make a living by helping people navigate the complexities of the tax system? Apparently not. Waldir Gomes Junior, of São Paulo's Accountants Syndicate, applauds the move toward electronic tax processing because it reduces errors and abuses. "It avoids placing the taxpayer at the mercy of how a given tax collector feels on a given day," he says. It also makes it easier for both taxpayers and accountants to obtain tax information, "because now that information is on the network. It would have been impossible to get that information by telephone."

Tax officials in São Paulo and Bahia are quick to point out that better service is only part of their reform agenda. An even more daunting challenge lies in overhauling the internal operations of the finance secretariats: upgrading staff skills, installing modern information management systems, increasing the number and efficacy of tax inspections, and providing reliable data about public accounts.

IDB financing from the PNAFE program is now being used to pay for many of these improvements. In Bahia, for example, the program helped pay for extensive staff training and for procuring computers, office facilities and vehicles for field tax inspectors. Funds are also being used to develop custom software applications that support electronic tax filing, communications, accounting and budget tracking functions. Executing agencies for the Fiscal Administration Program are now up and running in all 26 Brazilian states, and program coordinators are meeting regularly at the national level to compare experiences and to tackle a critical problem: the lack of integration between federal and state financial management systems--a shortcoming that makes it difficult to produce accurate national financial information.

Management remains key. Although information technology plays a vital role in tax modernization efforts, it is by no means a cure-all. Carlos Leony Fonseca da Cunha, coordinator of the tax reform program in the state of São Paulo and one of the architects of the Posto Fiscal Eletrônico, says the effort is only "30 percent technology," while the remaining 70 percent is "project management." The second task encompasses the complex art of changing the culture of a bureaucracy so that workers embrace new ways of working and become more "results-oriented," in the words of finance secretary Nakano.

This less tangible side of the reform process includes the difficult job of drafting and passing laws that simplify the tax system and mandate greater accountability. The Brazilian federal government, along with several state governments, is currently preparing a number of such proposals, and the long-term success of the entire reform program will depend largely on whether the new laws are passed.

It will also depend on whether the tax system is reformed all the way down to the local and municipal level. Under Brazil's 1988 constitution, municipalities are authorized to collect and administer revenue from taxes on urban property and services. They also receive transfers of tax funds collected by the federal government, meaning that all the federal and state-level efforts described above ultimately affect Brazil's city halls as well. Brazilian government officials are now developing a program that will seek IDB financing to extend the tax reform effort to no less than 5,000 municipalities nationwide.

Some cities, like some states, have already taken the initiative to overhaul their tax systems. Porto Alegre, capital of the southern state of Rio Grande do Sul, has garnered international attention in recent years for its ground-breaking approach to public financial management that stresses a "participatory" budget process. Instead of making spending decisions behind closed doors--a tradition that contributes to public distrust and is used as a justification for tax evasion--municipal officials in Porto Alegre hold town meetings to solicit citizen input on budget priorities.

This consensus-building process allows taxpayers to influence the way their contributions will be spent. It's a simple concept, really. But it can make it much easier for a government to tax--and please.