Levy rises in the states with the help of Emergency Aid

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During the pandemic, with the payment of Emergency Aid, 14 states saw an improvement in the collection of the main state tax, the Tax on Circulation of Goods and Services (ICMS).

According to a survey by the Brazilian Federation of State Tax Inspectors’ Associations (Febrafite) and the Brazilian Institute of Economics of the Getulio Vargas Foundation (Ibre / FGV), even with the crisis, in some states, the gain in the collection with the ICMS in the analyzed months, it exceeded 10% in comparison with the same period of 2019.

Of all that is collected directly by the states, the ICMS is responsible for about 80%. The study compares the data for July and August this year with the same period in 2019. The figures have already been corrected for inflation and cover the months in which the economy’s reopening began to be more intense across the country.

The researchers’ conclusion is that, although the country is experiencing economic difficulties due to the crisis caused by the pandemic of the new coronavirus, Emergency Aid has given a boost to the budget of Brazilians, especially those with lower incomes, and has resulted in increased consumption .

The impact of the aid has been evident in the country’s indicators. According to the Brazilian Institute of Geography and Statistics (IBGE), in August, for example, retail sales grew for the fourth month in a row and have already eliminated losses from the pandemic.

By the end of the year, the Federal Government should pay R $ 322 billion with the benefit.

“People with less purchasing power are less likely to save. In other words, they receive and already go to consumption”, says the president of Febrafite, Rodrigo Spada. “And this impacts the collection of ICMS”, he says.

Increase in revenue

The greatest increases in tax collection were observed in the states of the North, Northeast and Midwest. Proportionally, the population of these regions benefited most from the distribution of Emergency Aid.

“The states of the North and Northeast are also the most impacted because the economy there is smaller. And because, proportionally, low-income families are in greater proportion in these states,” says Spada.

In the individual analysis of the states, the biggest increase with the ICMS occurred in Roraima, an increase of 17.38%. Next came Mato Grosso (12.68%) and Pará (12.55%). The worst performances were observed in Acre (-23.91%), Piauí (-8.95%) and Rio Grande do Norte (-6.9%).

In total, between July and August, the 26 states and the Federal District collected R $ 85.5 billion with ICMS, up from the R $ 83.3 billion collected in the same period last year.

In addition to each state having a different dependence on aid in the local economy, factors such as the incidence of the disease, degree of social isolation and level of tax evasion help explain the difference in the variation in the collection of ICMS, according to the researchers.

“The Emergency Aid allowed the situation to be alleviated and that the collection figures of the states were not worse,” says Juliana Damasceno, a researcher at Ibre.

In the states of the Midwest, the good performance of agribusiness, with the increase in rural income and the impact on the local economy, also contributed to the improvement of the ICMS.

Relief is fleeting

The relief in the cash of the states, however, should be momentary. The reduction in the amount of Emergency Aid – from R $ 600 to R $ 300 – and the uncertainty as to whether the federal government will continue with a similar program next year should have a negative effect on the collection.

Without Emergency Aid and high unemployment, analysts estimate that consumption should lose strength over the next few months, which will impact the ICMS.

“From now on, the concern that all states have is precisely what is the capacity of the economy to fly without needing this stimulus of consumption, which the Emergency Aid represented”, says Juliana.

Before the pandemic, states were already facing a very difficult situation in public finances. And, to cope with facing the health crisis, the governors interrupted the fiscal adjustment process, renegotiated the debt with the Union and received additional resources from the federal government.

Without the impetus raised by Emergency Aid, the question among experts is how the states will find resources to finance public services in a period of extreme need.

“The effects of the pandemic are not just health, they are social, and will not end in December this year”, says Juliana. “What we are able to identify is that some needs will continue to exist and will need to be assisted in 2021 and even for other years, depending on the recovery of the economy.”

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