Haddad advances in plan to raise revenues in 2024 – 05/29/2023 – Market

Dependent on new revenues to meet the promised fiscal targets for the coming years, Minister Fernando Haddad (Finance) managed to advance in approving measures that could raise the Union’s revenue in 2024, but the achievement of the goal of zeroing the public deficit in the year coming is still a doubt among market analysts.

In government accounts, initiatives already validated by the Legislature and the Judiciary can yield at least R$ 130 billion to the public coffers next year. Other actions may increase this value, but still require the approval of parliamentarians or a political decision by the Executive (such as the re-encumbrance of fuels, which alone can result in over R$ 60 billion).

On the other hand, the government has also adopted some measures that give up revenue, such as the correction of the Income Tax table, the extension of incentives for the event sector and airline companies and a new stimulus program for the purchase of cars.

Economists outside the government see a certain optimism in the official estimates and have criticized the option of the Lula administration (PT) to focus efforts on the adjustment on the revenue side, instead of containing expenses. Even so, there is an assessment that some factors may contribute to expanding collections in the coming periods, although not to the extent propagated by the economic team.

The IFI (Independent Fiscal Institution) of the Senate calculates an extra collection potential of R$ 110.6 billion next year, already including validated or pending approval measures.

XP Investimentos sees room to raise revenues by BRL 148 billion, but, for that, it has promises not yet fulfilled, such as the taxation of sports betting.

The discussion is relevant because 2024 will be the first year under which the new fiscal framework will be in effect, if it is endorsed by congressmen. The Chamber of Deputies has already given the green light to the proposal, which is awaiting consideration by the Federal Senate.

The government promises to zero out the deficit in 2024, achieving balance between revenues and expenditures. The new rule provides for a margin of tolerance of 0.25 percentage points of GDP (Gross Domestic Product) for more or less, which is equivalent to something around R$ 25 billion.

The government’s ability to meet its own targets in the rule’s first year of operation will be an important sign of the framework’s sustainability going forward.

Among the measures already approved and that can reinforce the government’s cash is an MP (provisional measure) edited during the Jair Bolsonaro (PL) government that changes the rules of the so-called transfer price —a way of taxing international operations carried out by companies that are part of a same economic group.

The main objective of the proposal is to close loopholes used by multinationals to pay less taxes in Brazil. As income taxation is lower in other countries, they declare the sale of their products to branches abroad at a price close to the cost of production and, from there, complete the sale to the final recipient at the real price.

To put an end to the maneuver, the proposal extends to operations carried out within the same group the same rules applied in transactions between unrelated companies.

The new rules have already been approved and are awaiting presidential sanction. Its application will be mandatory from next year. The Treasury estimate is to obtain a collection of R$ 20 billion in 2024, which could reach R$ 70 billion per year in the future. IFI considers a similar amount for next year, while XP expects a lower gross amount, of R$ 12 billion, to be shared with regional governments.

The economic team also managed to approve, last Wednesday (24), the end of the use of ICMS credits, a state tax, in the payment of PIS and Cofins, two federal taxes.

The companies had a victory in the judgment in the STF (Federal Supreme Court) that removed the ICMS from the PIS/Cofins calculation base in sales operations, but they continued to account for the state tax in the acquisition of inputs because this was more advantageous —they were left with a larger tax credit to deduct due taxes.

A provisional measure was edited at the beginning of the year to put an end to the maneuver, but there was a risk that it would lose validity before being voted on by Congress. The government was able to articulate the inclusion of the proposal in another MP, which dealt with incentives for the events sector and airline companies.

Tax benefits should cost BRL 4.3 billion a year. Even so, the expected gain with the end of the use of credits is greater, reaching BRL 60 billion in 2024.

“We don’t have our own estimate, but it must be a high number in fact. It has a significant impact”, says economist Tiago Sbardelotto, from XP Investimentos.

The biggest controversy in numbers involves the decision of the STJ (Superior Court of Justice) that reestablished the collection of IRPJ (Corporate Income Tax) and CSLL (Social Contribution on Net Income) on ICMS tax incentives that do not focus on subsidize investments.

The Treasury foresees a collection of at least R$ 50 billion net from next year. The IFI, on the other hand, calculates a much more modest impact, of R$ 12.5 billion. XP expects a collection of BRL 21 billion for the Treasury – another portion will have to be shared with states and municipalities.

In addition to the divergence of values, economists are cautious because taxpayers can appeal the decision of the STJ, postponing the entry of resources into the government coffers. “In addition to the difficulty in estimating the amounts involved, the possibility that the current legal disputes will extend over the next few years constitutes another factor of uncertainty”, warns the IFI.

Despite the approved measures, the government also faces some setbacks. The structural effect expected from the reduction of disputes in the Carf (Administrative Council of Tax Appeals), which judges tax conflicts, should remain only on paper with the loss of validity of the provisional measure that sought to resume the tie-breaking vote in favor of the Treasury to equalize the disputes.

“Of what was announced as a structural, perennial measure, our estimate is R$ 148 billion. It is a significant gain, of course, but smaller than the government had been promising”, says Sbardelotto, from XP.

According to him, the fiscal targets stipulated by Haddad remain “quite ambitious”, even with the progress in the measures that raise the collection.

“With the change in the fiscal framework, which ends up boosting expenditure growth next year, as the rapporteur opened the possibility for [o gasto] grows 2.5%, we see that at least R$ 100 billion is missing to meet the target. There is still a long way to go for the government to close this hole”, he assesses.