Principal investigator: Adriano Valladão Pires Ribeiro
Article title: The Impact of the Nota Fiscal Paulista Program on the Expansion of State Tax Revenues
Article authors: Peter Felipe dos Santos, Hugo Leonardo Alves de Mendonça, Francisco Cassuce and Cristiana Rodrigues
Location of the intervention: State of Sao Paulo:
Sample size: 280 observations
Sector: Economic Policy and Governance
Type of Intervention: The impact of partial ICMS refunds on the expansion of state tax revenues.
Primary variable of interest: Monthly revenue from ICMS (Value Added Tax)
Evaluation method: Other – Quasi-experimental evaluation
Policy Problem
Tax evasionçTax evasion and informality are problems for public finances, which can be further aggravated by an extensive and complex tax system, cases of corruption among tax inspectors, and the inefficiency of the public sector in the use of collected resources. In an effort to mitigate these problems, the government of the state of São Paulo adopted, in January 2008, the Program to Encourage Fiscal Citizenship, also known as Nota Fiscal Paulista.
Evaluation Context
One consequence of reduced tax evasion and informality is increased revenue for 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 program, specifically the ICMS (tax on operations related to the circulation of goods and on the provision of interstate, intermunicipal and communication transport services). The program gains even more relevance since the state of São Paulo is the largest economy in the country and the ICMS is one of its main taxes.
Intervention Details
The Taxpayer Citizenship Incentive Program allowed any citizen, individual or legal entity, to register and request a 30% refund of the ICMS (Value-Added Tax) charged on purchases of goods and interstate and intercity transportation services in the state of São Paulo. After registration, the requirement was to provide the CPF (Individual Taxpayer Registry) or CNPJ (National Registry of Legal Entities) on the invoice at the time of purchase. The beneficiary could access the refunded amount and either deposit it into a checking or savings account or use it to pay their vehicle's IPVA (Vehicle Property Tax). The refund period was 5 years, and the minimum transaction amount was 25 reais. Furthermore, citizens could report businesses that refused to issue a tax document to the consumer; the accumulation of thirty or more complaints would lead public agents to investigate the establishment.
The policy adopted, therefore, sought to minimize fraud and tax evasion by commercial establishments, transforming the consumer into the monitoring agent, since the incentive generated by the ICMS (Value-Added Tax) refund to the buyer makes bribery impossible. The ease of reporting shopping centers that refuse to provide a tax document would also reduce the propensity for informality. The program's success in terms of adherence is also noteworthy, as observed in the... available data through the São Paulo State Treasury Department, registering over 21 million registrations and nearly 15 billion reais in distributed credits.
Monthly ICMS (Value-Added Tax) revenue will be used to measure the impact of the Nota Fiscal Paulistana (São Paulo Tax Invoice) program 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, for 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 is noted, then, that the combined revenue of the states of Minas Gerais and Rio de Janeiro, which did not adopt the same policy, provides a good counterfactual if the state of São Paulo had not adopted the program.
Based on 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 in the policy evaluation is formulated in two steps. The first consists of calculating the difference in ICMS (Value-Added Tax) revenue between the period before the program, from January 2003 to December 2007, and the period after, from January 2008 to August 2014, for both the control and treatment groups. This eliminates the individual differences that persist over time for each state. The second step compares the difference between the differences between the two groups, which would then indicate the impact of adopting the Nota Fiscal Paulistana (São Paulo Tax Invoice).
Finally, in order for the effect captured by these differences to truly reflect that of the program, it is necessary to consider other factors that also affect tax collection. That is, failing to take into account the main elements that impact ICMS (Value-Added Tax) collection would lead to an incorrect assessment of the implemented policy, as it would attribute its effects to the Nota Fiscal Paulistana (São Paulo Tax Invoice Program). The variables used were the Retail Sales Index, the Cost of the Basic Food Basket, and the Average Real Labor Income, and they sought to capture the effects of variations in the cost of living and the volume of economic activity in each state.
Results
The result from the above exercise indicates that the Fiscal Citizenship Incentive Program was positive, amounting to approximately 600 million reais for the public coffers of the state of São Paulo. In other words, the program led to an increase in state ICMS (Value-Added Tax) revenue compared to the control group not adopting the policy. It should be emphasized again that this result can be attributed to the program, as the impacts on tax collection related to the cost of living and economic activity were duly addressed. In perspective, the average amount collected by ICMS in the state of São Paulo during the analyzed period was almost 5 billion reais; therefore, the result obtained represents a 12% increase compared to the average for the period.
Lessons in Public Policy
The main lesson of the study is to highlight the role of the public sector in identifying problems and formulating effective public policies to solve them. In this case, tax evasion and informality were identified as obstacles to greater revenue collection in the state of São Paulo, and the Nota Fiscal Paulistana (São Paulo Tax Invoice), by transforming the consumer of goods and services into a tax collector, managed to increase ICMS (Value-Added Tax) collection in the state. The incentives created for citizens by the program make tax evasion and informality more difficult for commercial establishments, in addition to creating lasting tax awareness through the habit of requesting a tax receipt with each purchase.
ReferenceDOS 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.
