Brazil tax reform threatens municipal revenues

The ongoing tax reform in Brazil is raising significant concerns regarding the financial stability of various municipalities. A study by CEDEPLAR/UFMG, commissioned by the Brazilian Association of Mining Municipalities (AMIG Brasil), indicates that the 30 largest mining municipalities could see a combined revenue loss of over R$ 2 billion. This decline is attributed to a shift in distribution criteria for the new Goods and Services Tax (IBS), which will place greater emphasis on population size rather than local economic production.

In Mato Grosso, the Association of Mato Grosso Municipalities (AMM) has expressed similar fears. The entity warns that smaller municipalities with high productive capacity but low populations may suffer as tax distribution shifts toward consumption-based models. To mitigate these risks, the AMM has held numerous meetings to prepare local managers for the upcoming changes.

Compounding these structural concerns is a recent decline in federal transfers through the Municipal Participation Fund (FPM). Official data shows real decreases in transfers during August and September, driven by lower federal tax collection, particularly from corporate income tax. The National Confederation of Municipalities (CNM) warns that potential changes to income tax exemption thresholds could further reduce municipal coffers by up to R$ 9.5 billion annually.