States increase tax revenue despite second Covid wave

Eighteen of Brazil’s 27 states saw their revenues from goods and services tax (ICMS) jump by nearly 19.6 percent in the first four months of 2021, compared to the same period of last year. This, despite social isolation measures enforced to contain a second pandemic wave. 

ICMS is the most important tax for Brazilian states, amounting to some 85 percent of tax revenue and has major uses — in São Paulo, for instance, it is responsible for the budget of public universities. The tax is also at the forefront of the debate regarding tax reform. 

The numbers provided by the National Finance Policy Council show a 21.4-percent revenue increase in relation to 2019, suggesting resilience even compared to pre-pandemic times. According to authorities consulted by finance newspaper Valor, one of the main reasons is the hike in fuels and energy prices, the boost in e-commerce, and the use of savings and emergency aid funds in the first months of the year. 

They also note that the lower comparison base — as the pandemic first hit Brazil in March 2020 — caused distortions, such as the 45-percent increase in Rio de Janeiro’s tax revenue. Such distortions and fears for the future explain why authorities are cautious regarding increasing expenditures.

As noted by the finance secretary of Espírito Santo state, Rogelio Pegoretti, “there are two-thirds of the year left, besides the possibility of a third pandemic wave and challenges to produce vaccines.”

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