ICMS cut may increase GDP by 3,5%


Source: O Globo, 14/08/2005

FGV study, which will be presented to Palocci tomorrow, shows that measure would create 2,3 million jobs

SAO PAULO. At the request of the Brazilian Institute of Ethics in Competition (Etco), Fundação Getulio Vargas (FGV) projected on the effects of the unification of ICMS rates across the country. The conclusion is that the Gross Domestic Product (GDP, total goods and services produced in the country) could grow up to 3,5%, with the generation of 2,3 million jobs, if the average nominal tax rate were reduced from the current ones 11,5% to 10,7%. The unification of the rate is one of the main points of the tax reform that has been going on for almost three years in Congress.

This is the most positive of the three scenarios included in the study, which will be presented to the Minister of Finance, Antonio Palocci, during a seminar tomorrow in São Paulo. The premise in this case is that there would be a consensus among governors to simplify the system and consider the lowest rates for calculating the general average tax.

In the hypothesis of maintaining the average rate at 11,5%, Brazilian states would maintain the current level of collection (R $ 118,8 billion), but the economy as a whole would lose out. According to FGV, there would be a negative impact of 0,12% on GDP.

If ICMS rises, GDP shrinks R $ 83 billion and inflation accelerates

The most disastrous scenario is one in which, in an effort to increase revenue, the nominal rate goes to 13,6%. As a result, there would be a drop of almost six points in GDP, which would represent a loss of R $ 83,2 billion to the country.

? Does the study allow you to measure impacts before finding that tax increases are of no consequence? said Etco President Emerson Kapaz.

ICMS is the main tax revenue for states in Brazil. On average in the country, it represented 89,5% of the collection of state taxes in 2004. In some states in the North and Northeast regions, such as Rondônia, Amazonas, Bahia and Ceará, this participation reached 90%. Changes in the tax may also affect inflation, as they produce changes in the relative prices of the economy. With a rate of 13,6%, the CPI would rise 2,39%.