The richest municipality collects 200 times more from taxes than the poorest

According to the technical note Impactos Redistributivos (in the Federation) of the Tax Reform, the difference in revenue per inhabitant/year between the richest and poorest municipalities in the country reaches 200 times (R$ 14,621 x R$ 74). The scenario considers the revenues of municipalities with the Tax on Services (ISS) and the share of the Tax on Circulation of Goods and Services (ICMS) that they receive from the states.

The study projects that, if the tax reform adopts the principle of taxation at destination and the division of the share of the Tax on Goods and Services (IBS) – a new state and municipal tax – starts to occur predominantly by the population, the city most rich would have income 13 times greater than the poorest (R$ 6,426 x R$ 497).

An Ipea researcher assigned to the Rio Grande do Sul State Treasury Department (Sefaz-RS), Sérgio Gobetti is one of the authors of the study. He claims that the survey highlights that the tax reform would bring benefits that were not widely publicized in discussions on the subject.

“The starting point of the study is to show society how profoundly unequal the distribution of these tax revenues among federal entities is. In summary, the objective is to show that the benefits of tax reform go far beyond simplification and the important gain in economic efficiency. It allows almost a distributive revolution in the Brazilian federation, drastically reducing the revenue difference between states and, mainly, between municipalities.”

Exception

The researchers analyzed the exchange of ICMS (state) and ISS (municipal) by IBS. As in the preliminary version of the substitute for the Proposed Amendment to the Constitution (PEC) 45/2019 — presented in the Chamber of Deputies on the last 23rd day —, the study considers an IBS with a broad incidence base, that is, that reaches the majority of products and services; of full non-cumulativeness; and that it is collected at the destination, that is, where consumption takes place.

In addition to reducing inequality in revenue per inhabitant-year between municipalities, tax reform guided by a “long and smooth” transition rule, combined with accelerated economic growth, would mitigate the redistributive effects for those who earn more today and would provide an increase almost widespread revenue among the states, believe the authors.

The researchers simulated the effects of the proposed proposal in the final report of PEC 110/2019 under three economic scenarios. In the first, in which the reform does not generate extra economic growth, around 16% of the municipalities and ten states would accumulate a lower income, in 20 years, than in the hypothesis of no reform. This means that 84% of city halls and 17 states would see their own revenue grow.

The second scenario considers a growth of 4% on the Gross Domestic Product (GDP) in 15 years, as a result of the end of cumulativeness. In this situation, the percentage of losing municipalities drops to 12% and the percentage of states drops to six. That of winners rises to 88% and 21, respectively.

In the most optimistic scenario, in which the economy would gain productivity and the GDP would show additional growth between 12% and 20% over a 15-year period, only 2% of the municipalities would lose out. No state or capital would suffer losses.

Coordinator of the working group that discussed the tax reform in the Chamber of Deputies, Reginaldo Lopes (PT-MG) believes that the proposal will boost the country’s growth.

“I am very convinced of the success of this reform, when it is enacted. I believe that, in fact, it will create a favorable ecosystem for attracting new foreign and domestic investment. It will place Brazil on another level of competitiveness, it will strengthen our economic vocations.”

Gobetti explains that the cities that are among the potential losers of resources will have the impacts on cash minimized thanks to the slow transition. “They will lose a slice of the pie, but this loss will occur gradually. Let’s say that a municipality has a slice of the pie equivalent to 10% and it will drop to 5%. This change will not happen overnight. It will be. a change between 40 and 50 years. It means that, in the first year, instead of receiving 10%, he will receive 9.9%, then 9.8%. That is, his share will be reduced very slowly, while the The size of the pie is increasing. Why is the size of the pie increasing? Because we have economic growth”, he analyzes.

Tax reform has different rates for VAT and 8-year transition

Last week, deputy Aguinaldo Ribeiro (PP-PB) presented the preliminary text of the tax reform. The expectation of the mayor, deputy Arthur Lira (PP-AL), is to put the proposal to a vote in the first week of July.