Union contribution to tax reform fund will be less than R$ 50 billion, says Appy – 06/20/2023 – Market

The Union’s contribution to the FDR (Regional Development Fund), a key element in raising support from the states for tax reform, will be less than R$ 50 billion a year, said this Tuesday (20) the extraordinary secretary for Tax Reform at the Ministry of Finance, Bernard Appy.

According to him, the values ​​have not yet been closed, but, in internal discussions, the figures do not reach the R$ 50 billion that have been reported by governors.

“From the numbers I know, in internal discussions, it is a smaller value”, said Appy after participating in the event Tax Reform and Industry, promoted by the newspaper Correio Braziliense and by the National Council of Sesi.

The secretary also recalled that, in “any scenario”, the injection of resources into the FDR will be made progressively —increasing each year until reaching the full amount negotiated.

The fund is being conceived as an attempt to reduce the resistance of the states and municipalities, which, after the reform, will no longer be able to define their tax rates by themselves. Taxation on consumption would be done through a dual IVA (Value Added Tax) —with a portion from the Union and another from states and municipalities.

Regional governments will also not be able to grant tax benefits along the lines of what is currently done. Therefore, the fund would serve to ensure the existence of instruments to encourage economic activity in less developed regions.

The tax reform guidelines report suggests that the FDR will be funded “primarily” by federal funds. There are claims for the federal government to pay alone an invoice in the range of R$ 50 billion to R$ 60 billion a year. There are states that ask for an even higher number, close to R$ 100 billion.

Governors and mayors of the South and Southeast regions also want access to these funds, since the North, Northeast and Midwest already have other instruments for regional development, such as constitutional funds.

Appy has already confirmed that the Union will finance part of the fund, but rejected the risk of an unlimited invoice.

“The Union intends to support the Regional Development Fund, but it is not an unlimited amount. And this will be done in a way that does not compromise the path of the public debt. It will be done in a fiscally responsible manner”, stated the secretary on the day of the presentation of guidelines on June 6.

The value of the FDR is just one of the deadlock points in the reform, whose text of the PEC (proposed amendment to the Constitution) has not yet been presented by the rapporteur, deputy Aguinaldo Ribeiro (PP-PB).

Another concern of the states is the validation of tax benefits already granted and which are guaranteed until 2032.

How did you anticipate the Sheet, the need to resolve this liability may make the transition from state and local taxes to the new VAT more gradual. The strategy prevents the Union from having to pay an even higher bill to reimburse companies covered by the benefits —a value that would be added to the contribution to the FDR, since the purpose of the fund is to finance future incentives.

The coordinator of the tax reform working group, Deputy Reginaldo Lopes (PT-MG), said that, if the FDR is used to cover the costs of validation, the value will need to exceed the amounts between R$ 50 billion and R$ 60 billion that have been cited in the negotiations.

In an attempt to reach a consensus, the mayor, Arthur Lira (PP-AL), said he invited all governors and their finance secretaries to a meeting on Thursday morning (22). According to him, the meeting must be “decisive” to reach a consensus proposal.

The mayor wants to vote on the proposal in the plenary in the first week of July.

“We are going to work for a possible tax reform. Nobody has the illusion of making the ideal one”, he said.