Did the São Paulo Invoice increase State revenue?

Responsible researcher: Adriano Valladão Pires Ribeiro

Article title: THE IMPACT OF THE PAULISTA INVOICE PROGRAM ON THE EXPANSION OF STATE TAX REVENUES

Authors of the article: Peter Felipe dos Santos, Hugo Leonardo Alves de Mendonça, Francisco Cassuce and Cristiana Rodrigues

Location of intervention: State of São Paulo

Sample size : 280 observations

Sector: Economic Policy and Governance

Type of Intervention: Effect of refunding part of ICMS on the expansion of State tax revenues

Variable of main interest: Monthly ICMS collection

Evaluation method: Other - Quasi-experimental evaluation

Policy Problem

Tax evasion and informality are problems for public finances, which can be further aggravated given an extensive and complex tax system, cases of corruption among supervisory agents and the inefficiency of the public sector in terms of the use of collected resources. In order to alleviate such problems, the government of the state of São Paulo adopted, in January 2008, the Fiscal Citizenship Incentive Program, also known as Nota Fiscal Paulista.

Assessment Context

A consequence of the reduction in tax evasion and informality is greater revenue from the public sector. Therefore, the collection of state taxes affected by the measure could be used to assess the impact of the Nota Fiscal Paulistana, specifically the ICMS (tax on operations related to the circulation of goods and on the provision of interstate, intercity and communication transport services). The program gains even more relevance since the state of São Paulo is the largest economy in the country and ICMS is one of its main taxes.

Intervention Details

The Fiscal Citizenship Incentive Program allowed the registration of any citizen, individual or legal entity, to be able to request a refund of 30% of the ICMS charged on purchases of goods and interstate and intercity transport services in the state of São Paulo. The requirement, after registration, was to provide the CPF (Individual Taxpayer Registry) or CNPJ (National Legal Entity Registry) on the invoice at the time of purchase. The beneficiary can access the amount to be returned and either deposit the amount into a current or savings account or debit the IPVA from their vehicles. The limit for refunding the money is 5 years and the minimum transaction value is 25 reais. Furthermore, citizens can report companies that refuse to issue the tax document to the consumer; the accumulation of thirty or more reports would lead public agents to check the establishment.

The policy adopted, therefore, sought to minimize fraud and evasion by commercial establishments by transforming the consumer himself into the supervisory agent, since the incentive generated by the refund of ICMS to the buyer makes the practice of bribery impossible. The ease of reporting shopping centers that refuse to provide tax documents would also reduce the propensity for informality. The success of the program in terms of its adherence is also highlighted when observing the data available by the São Paulo State Finance Department, recording more than 21 million registrations and almost 15 billion reais in credits distributed.

Methodology Details

The monthly ICMS collection will be used to measure the impact of the Nota Fiscal Paulistana for the period from January 2003 to August 2014. Ideally, the way to obtain the effect of the measure would be by comparing the difference in state tax collection, to the same period, with and without the adoption of the program. In practice, however, only one reality is observed and such a comparison cannot be implemented. It should be noted, then, that the union of revenue from the states of Minas Gerais and Rio de Janeiro, as they did not adopt the same policy, provides a good counterfactual if the state of São Paulo had not adopted the program.

From the discussion above, the state of São Paulo is the treatment group and the states of Minas Gerais and Rio de Janeiro form the control group. The methodology used to evaluate the policy is formulated in two steps. The first consists of taking the difference in ICMS collection between the period before the program, from January 2003 to December 2007, and the period after, from January 2008 to August 2014, for the control and treatment groups. Thus, individual differences constant over time in each state can be eliminated. In the second, the difference between the two groups is compared, which would then indicate the impact of adopting the Nota Fiscal Paulistana.

Finally, for the effect captured by these differences to be, in fact, that of the program, it is necessary to consider the other factors that also affect tax collection. That is, not taking into account the main elements that impact ICMS collection would result in an incorrect assessment of the implemented policy, as it would impute its effects to the São Paulo Invoice. The variables used were the Retail Sales Index, the Cost of the Basic Basket and the Average Real Labor Income and sought to capture the effects of variations in the cost of living and the volume of economic activity in each state.

Results

The result arising from the above exercise indicates that the Fiscal Citizenship Incentive Program was positive and in the order of 600 million reais for the public coffers of the state of São Paulo. In other words, the program led to an increase in state revenue from ICMS when compared to the non-adoption of the policy by the control group, highlighting again that this result can be computed to the program, as the impacts on tax collection related to the cost of living and economic activity were duly affected. In perspective, the average value collected by ICMS in the state of São Paulo in the period analyzed was almost 5 billion reais, therefore, the result obtained means an increase of 12% in relation to the average for the period.

Public Policy Lessons

The main lesson of the study is to highlight the role of the public sector in identifying problems and formulating effective public policies to resolve them. In this case, tax evasion and informality were identified as obstacles to greater collection in the state of São Paulo and the Nota Fiscal Paulistana, by transforming the consumer of goods and services into the inspection agent, managed to increase ICMS collection in the state. The incentives created for citizens by the program make it difficult for commercial establishments to commit tax evasion and informality, in addition to creating lasting tax awareness through the habit of asking for a tax document with each purchase.

Reference : DOS SANTOS, Peter Felipe et al. The impact of the Nota Fiscal Paulista program on the expansion of the State’s tax revenues. ESPACIOS Magazine | Vol. 36 (No. 17) Year 2015.