Brazil: Tax Expenditure Rationalization Within Broader Tax Reform

Coelho, Maria

doi:10.5089/9781513596624.001

Cited by 2 publications

(7 citation statements)

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“…Неблагоприятные социально-экономические условия, усложнение налоговой системы приводят к возникновению рисков при реализации механизма налоговых расходов [Coelho, 2021]. Ключевыми из которых являются риски недостижения целей введения налоговых льгот и преференций или несоответствие политическим целям [Neubig, Redonda, 2017;Redonda и др., 2019] и другие риски.…”

Section: Introductionunclassified

Assessment of the formation and volume of tax expenditures in the federal budget

Demidova

2023

TSU Herald. Soc Econ Law Res

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This article analyzes approaches to the formation of tax expenditures in the federal budget, their volumes, and their interconnectedness with state programs and national development goals. The concept of tax expenditures is based on the premise that tax benefits and preferences should have a greater effect than direct methods of budget financing, such as subsidies. Tax expenditures in the federal budget are primarily focused on stimulating the oil and gas industry, with a significant amount associated with VAT and income tax. The risks of tax incentives, caused by both foreign policy factors and internal structural features of the economy, are considered. Conclusions are drawn that the risks of federal budget revenue losses are increasing. Simultaneously, the list of expenses eligible for investment tax deductions is expanding, although they can be considered productive tax expenditures since the effect of self-sufficiency in recovering lost budget revenues is expected. The primary direction for improving tax expenditures is proposed to involve enhancing the realism of assessments, increasing transparency, and ensuring the targeted nature of tax expenditures by reflecting them in government programs.

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Section: Introductionunclassified

Assessment of the formation and volume of tax expenditures in the federal budget

Demidova

2023

TSU Herald. Soc Econ Law Res

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“…In focusing heavily on indirect taxes and relying less on progressive direct taxes, the system is only moderately redistributive despite high overall tax collection. According to some studies, redistribution, measured as the relative burden of the highest earners to that of the lowest ones, has decreased since the mid-1990s, both due to low effective income tax rates for the rich and the low share of direct taxes (Coelho, 2021). Social transfers have a positive redistributive impact, partly offsetting the regressivity of the tax system.…”

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confidence: 99%

“…• SIMPLES: The regime has a high maximum turnover ceiling of about US$1 million per year, compared to a recommendable level estimated at about US$200,000 per year (see Coelho, 2021). Nearly 65 percent of formal firms in the country were registered in SIMPLES as of 2020 (OECD, 2020).…”

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confidence: 99%

“…Nearly 65 percent of formal firms in the country were registered in SIMPLES as of 2020 (OECD, 2020). The annual cost is estimated at about 1.1 percent of GDP at federal level in 2023, without accounting for subnational tax exemptions (Coelho, 2021).…”

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confidence: 99%

“…According to some estimates, state-level ICMS exemptions could add up to as much as 1.2 percent of GDP (seeCoelho, 2021).5 For a summary of economic impact estimates, see da Silva Nunes, Carvalho Araujo, and Moreira deOliveira (2023) ©International Monetary Fund. Not for Redistribution…”

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confidence: 99%

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Brazil

2023

IMF Staff Country Reports

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9.Strong underlying institutions are needed to foster compliance. Significant deviations from existing rules occurred in the aftermath of the pandemic, with nearly 80 percent of countries suspending or modifying their rules (Davoodi and others, 2022). Many governments, however, envisage a return to fiscal rules to strengthen credibility, offering an opportunity to revisit frameworks (IMF, 2022). An upgraded medium-term fiscal framework (MTFF) that combines more flexible rules and strengthened institutions could provide appropriate guidance to promote sound public finances (IMF, 2022). In this context, strong institutions are needed to forecast fiscal paths and risks, monitor the implementation of MTFFs, and enforce compliance with anchors. 10.Cross-country experience helps distill several principles for the design of fiscal rules. Rules should be simple, transparent, and flexible enough to respond to shocks, while providing operational guidance and accountability. A fiscal framework should also ensure long-term ©International Monetary Fund. Not for Redistribution BRAZIL 6INTERNATIONAL MONETARY FUND sustainability and economic stabilization, and, when applicable, facilitate coordination across levels of government.C. Brazil's Fiscal Framework: Past and Present 11.Brazil was among the first emerging market economies to adopt fiscal rules, according to the IMF Fiscal Rules Database. A golden rule was introduced as part of the 1988 constitution. In the wake of the late-1990s fiscal crisis, the country passed a Fiscal Responsibility Law (FRL) in 2000, implementing primary balance targets as the main operational anchor in annual budgets. Following the crisis in the mid-2010s, a federal spending rule was enshrined in the constitution in 2016. Currently, a new fiscal rule is under consideration by Congress after the ceiling was revoked by a constitutional amendment in December 2022.1988 Golden Rule 12.The 1988 golden rule was adopted to safeguard fiscal responsibility and public investment. By restricting new borrowing to finance capital expenditures, it aimed to limit (current) fiscal deficits and reduce public debt, while allowing flexibility to tackle large infrastructure investment needs. The rule applies to each level of government. 13.The definition of capital spending under the Brazilian golden rule is very broad and has allowed de facto current deficits, while investment declined. The design of the rule hinges on a definition of capital spending that extends beyond the traditional concept of investment in non-financial assets. New borrowing is bound by the sum of investments in non-financial as well as in financial assets, including debt amortization, government lending, equity purchases, and debt valuation changes due to exchange rate fluctuations. Historically, public financial investment in Brazil has been as large or even larger than investment in physical capital (Barros and others, 2018). Furthermore, financial revenues have been sizable due to the transfer of central bank profits to the treasury and the re...

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Brazil: Tax Expenditure Rationalization Within Broader Tax Reform

Cited by 2 publications

References 6 publications

Assessment of the formation and volume of tax expenditures in the federal budget

Assessment of the formation and volume of tax expenditures in the federal budget

Brazil

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