Financial Crisis Reduced Brazil's 2009 Tax Burden, Revenue Department Says

Originally published in the September 6, 2010 edition of World Tax Daily (Copyrights Tax Analysts)

Brazil’s Federal Revenue Department (FRD) on September 2 released statistics on the country’s overall tax burden in 2009, noting a decrease from the previous year for the first time in a decade.
Sandro de Vargas, FRD undersecretary of taxation and litigation, and Jefferson Rodrigues, FRD studies coordinator, indicated that the financial crisis in the second half of 2008 was the single factor that most influenced the reduction.

The figures released by the FRD revealed some interesting facts: While tax revenue from business activities fell, there were minor increases in tax revenues related to payroll and employment, as compared with 2008. For example, revenue from the Contribution for the Financing of Social Security (COFINS) dropped 0.28 of a percentage point, federal excise tax (IPI) revenue dropped 0.34 of a percentage point, and income tax revenue fell 0.32 of a percentage point. On the positive side, revenue from the social security payroll tax increased by 0.35 of a percentage point, Severance Payment Fund contributions increased 0.12 of a percentage point, and public servants’ social security contributions rose 0.05 of a percentage point.

The drop in corporate tax revenue resulted from lower profits, whereas the lower IPI revenue resulted from tax breaks granted to various business sectors, such as motor vehicles, home appliances, and civil construction materials, to stimulate local consumption, the FRD said.

However, layoffs during the early months of the financial crisis increased severance payments, boosting tax revenue from Severance Payment Fund contributions, and the beginning of Brazil’s economic recovery in the last months of 2009 increased hiring, which boosted revenues from the social security payroll tax and public servants’ social security contributions.

Brazil’s overall tax burden dropped 0.83 of a percentage point in 2009 as compared with 2008, from 34.41 percent of GDP to 33.58 percent. The FRD indicated that the financial crisis caused a drop of 0.2 percent in the GDP and a reduction of 2.61 percent in tax revenues at all levels — federal, state, municipal, and social.

David Roberto R. Soares da Silva, tax partner, Azevedo Sette

Azevedo Sette Advogados