State Tax Waivers In Brazil Skyrocket: 189% Rise In Five Years

(MENAFN- The Rio Times) Brazil's state governments are set to forgo R$ 267 billion ($47.68 billion) in revenue through tax benefits by 2025. This figure marks a dramatic 189.13% increase from 2020 levels, nearly tripling in just five years.

A study by Fenafisco, the Federation of State and District Tax Authorities, highlights this trend. The organization warns about the impact on public finances and essential services. Data from state budget guidelines laws formed the basis of this comprehensive analysis.

Experts Juliano Goularti and Talita Alves point out a troubling regional imbalance in tax incentives. More developed regions offer more breaks, attracting even more benefits. The Southeast region claims 47% of total tax waivers, with São Paulo and Rio de Janeiro accounting for 39%.

These tax breaks directly affect funding for crucial public services. As ICMS revenue decreases, sectors like health, education, and security face budget constraints. This often leads to increased tax burdens on the general population.



The study also highlights issues of unfair competition. Companies benefiting from tax incentives gain an edge over those without such support. This disparity particularly challenges smaller businesses struggling to compete.

Certain sectors have benefited more than others. The industry sector leads with 38% of the benefits, followed by commerce at 20.13%, and agriculture at 16.70%.

A significant jump in tax waiver values occurred between 2021 and 2022. Legislative changes validated previously unconstitutional benefits and extended incentives until 2032.
State Tax Waivers in Brazil Skyrocket: 189% Rise in Five Years
The ongoing tax reform aims to address some of these issues by bringing more transparency to the process. However, Fenafisco president Francelino Valença warns that the new model could centralize lobbying efforts in the National Congress , potentially leading to even higher tax rates.

The reform also includes plans to exempt basic food items from taxes. However, Valença cautions that this might not translate to lower prices for consumers.

As Brazil navigates these complex fiscal water , balancing economic incentives with sustainable public finances remains a critical challenge. The coming years will reveal the true impact of these expanding tax breaks on Brazil's economic landscape.

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