The Brazilian ‘Ecological-Icms’: A Pes Scheme Based on Distribution of Tax Revenue

Abstract

The scope of this legal brief is to analyze the Brazilian legislation concerning the ‘Ecological-ICMS’, the ‘ecological’ State value-added tax imposed on the circulation of goods and services – ICMS. Using a deductive method, it was identified this tax mechanism operates as a type of ‘payment for ecosystem services’ (PES) scheme in practice, offering the possibility to stimulate environmental protection by distributing revenue from ICMS collected by States to Municipalities that promote conservation of ecosystems and biodiversity. This type of measure was motivated by the need to address challenges in providing economic compensation for Municipalities that undertook environmental protection measures in Brazil, and can serve as a form of positive incentive for the conservation and sustainable use of biodiversity.

Biodiversity & justice

“…In combination with the ICMS this meant that some municipalities were losing out since land restrictions were limiting their ability to generate value-added-tax, thereby reducing their allocation of ICMS funds. In 1991 the state of Paraná introduced the ICMS Ecologica, an additional criterion for the allocation of funds from the ICMS which meant that 5% of the state’s ICMS revenue would be distributed to areas with protected land or public water supply (Bassani, 2015). It was hoped that the new criterion would compensate counties subject to land use restrictions which could incentivise counties to set more land aside for protection, or improve the management of existing protected areas (Grieg-Gran, 2000).…”

“…ICMS Ecologica has now been adopted in varying forms across 15 of the 26 Brazilian states to provide a positive incentive by rewarding municipalities who promote biodiversity conservation and sustainable land use (Bassani, 2015). From a justice standpoint, successful implementation has occurred when the costs of holding protected land were well recognised, such that payments to the municipalities equated with the opportunity cost when such units were created satisfactorily.…”