Tax burden is the highest in 12 years, despite Bolsonaro’s promise

The Brazilian tax burden grew to the equivalent of 33.9% of GDP (Gross Domestic Product) in 2021, the highest level in at least 12 years. The increase is registered despite the promise made by President Jair Bolsonaro (PL) during the 2018 campaign of a gradual tax reduction.

The percentage is the result of an increase of more than two percentage points compared to 2020 (when the number had stood at 31.7%) and was driven by the reversal of tax incentives introduced during the Covid-19 crisis.

The numbers are part of estimates made by the National Treasury based on the IMF (International Monetary Fund) statistics manual. The official number on the tax burden is usually released by the Federal Revenue in the middle of the year.

In the breakdown by sphere of government, the greatest growth was seen in the collection of taxes by the federal government – ​​which grew by 1.53 percentage points (to 22.48% of GDP).

According to the Treasury, the increase in federal revenue is the result of factors such as higher income from IRPJ (Corporate Income Tax) and CSLL (Social Contribution on Net Income), indicating a better result for companies.

In addition, more resources were obtained from the IOF (Tax on Financial Operations). In this case, growth is recorded after the rate is reduced to zero between April 3, 2020 and December 31, 2020 to mitigate the effects of the Covid-19 crisis.

The burden of state governments increased by 0.55 percentage point (to 9.09% of GDP). Municipal governments increased by 0.06 (to 2.33% of GDP).

The data also show that the highest tax burden is on goods and services (14.76% of GDP). Then come social contributions (8.19%), taxes on income, profits and capital gains (8.02%), property taxes (1.65%) and others (1.28%).

During the 2018 campaign, then-candidate Bolsonaro stated in the government program delivered to the Electoral Justice that his proposals included the “gradual reduction of the Brazilian gross tax burden”.

The only year in which the mandate saw a retraction in the burden, however, was in 2020 – the year of the height of the economic crisis caused by the Covid-19 pandemic and when tax relief measures were granted to reduce the impact of the crisis.

This year, the government has intensified definitive tax reduction measures. According to Minister Paulo Guedes (Economy), the increase in tax collection cannot feed an obese State and give rise to policies considered wrong.

In February, for example, the government announced a 25% linear cut in the IPI (Imposto sobre Produtos Industrializados). Guedes defended the measure saying that it will boost the Brazilian industrial park.

“The 25% reduction in the IPI is a milestone in the beginning of Brazilian reindustrialization, after four decades of deindustrialization,” he said. “[O imposto] it was a stake in the Brazilian industry, and we are going to take that stake out,” he added.