IBS Management Committee and its role in interfederative fiscal balance

Abstract

This paper address the role of the IBS Management Committee created by Constitutional Amendment 132/2023 in inter-federative fiscal balance. We investigate the following issues: What is the political nature of the IBS Management Committee? How does the change in the territorial taxation criterion (from origin to destination) affect Brazilian federalism? What are the effects of changing the nature of revenue for subnational entities (from own revenue to transferred revenue)? What is the role of the Management Committee in inter-federative fiscal balance? We argue that, although the tax reform significantly impacted the autonomy of subnational entities, there was a normative concern for the budgetary balance of each federation unit, particularly regarding the following aspects: (1) mandatory impact assessment and compensation in cases of legislative changes or interpretations that affect the collection and distribution of the IBS; (2) concern with transitional regulations; and (3) fiscal equalization norms. The exchange of the subnational entities' tax autonomy for their participation in the management of the IBS through the Management Committee represents more than just a change in the nature of revenue (from own revenue to transferred revenue). It increases the risk that subnational entities may not be able to cover their mandatory expenses or fulfill their constitutional responsibilities through their own fiscal management efforts, considering the Brazilian context of fiscal imbalance and legal uncertainty. The fiscal balance of States and Municipalities, in terms of revenue, will depend on external decisions—mainly those of the IBS Management Committee. The research is theoretical, based on documentary analysis and the deductive method.