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If Income Tax Is Abolished, With Proposal From Deputy Júlia Zanatta (PL-SC), The Base That Feeds FPE And FPM Would Collapse. Understand The Constitutional Percentages, The Extra Quotas And The Size Of The Impact On Local Finances.
The proposal to abolish the Income Tax for individuals and legal entities, a bill presented by Deputy Júlia Zanatta (PL-SC), has reignited a point that is rarely discussed outside technical circles. FPE and FPM directly depend on the collection of IR and IPI. These funds are the vein through which federal money reaches municipalities and state governments.
Without IR, the tax base shrinks abruptly. According to the Constitution, the FPE receives 21.5% of the net collection of IR and IPI, while the FPM has a base percentage of 22.5% and also counts on additional quotas in specific months.
The deputy’s idea arose amid the debate about expanding the exemption range, which reignites the discussion about tax burden, contrasting the promise of financial freedom with the risk of fiscal impact on public accounts. If approved, one of the main sources of federal revenue would cease to exist, requiring a rethink of the tax model and the ways to finance essential services.
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From a fiscal perspective, zeroing out the IR without compensations would violate the rules of the Fiscal Responsibility Law regarding the renunciation of revenue. The LRF requires impact estimates and compensatory measures for any significant loss of revenue.
FPE And FPM In Article 159: Why States And Municipalities Depend On IR And IPI
The Constitution mandates that the Union transfer part of the revenue from IR and IPI to the Participation Funds. For the States and the Federal District, the FPE receives 21.5% of this amount. Municipalities have the FPM, with 22.5% as the constitutional base. These percentages are historical pillars of the federative pact and are found in Article 159. Without IR, the constitutional tax base shrinks immediately.
The FPM has been reinforced by three amendments: EC 55/2007 created the extra quota for December; EC 84/2014 instituted the extra quota for July; and EC 112/2021 added the September quota, which will reach 1% in 2025 after a phased transition. These quotas are additional deliveries beyond the base percentage.
In practical terms, FPE and FPM are not “voluntary aids”, but constitutional transfers provided for in superior norms. Changing this dynamic would require amending the Constitution, repositioning bases and percentages or creating a substitute source.
How Much Money Would Disappear From The Local Coffers If The IR Disappeared
The National Treasury reported that, in April 2025, FPE and FPM amounted to R$ 25.0 billion in transfers. An abrupt decrease in the tax base would impact decades of the FPM and monthly transfers from the FPE in the early cycles, jeopardizing payroll and services. The National Confederation of Municipalities often warns about the sensitivity of the second and third decades, when many municipalities are at the limit of their cash flow.
To measure the “ceiling of the warehouse,” it is worth observing the size of the collected cake. According to the Ministry of Finance, the revenue managed by the Federal Revenue Service totaled R$ 2.524 trillion in 2024, and the total federal revenues reached R$ 2.652 trillion, a historic record. If the main column of this building disappears, the engineering of transfers needs to be redesigned. Without IR, the domino effect on FPE and FPM is immediate.
Another point is the relative composition between IR and IPI. In various periods, IR has a much greater weight in the tax base that sustains the funds, while IPI has undergone reductions and fluctuations. In practice, it is the IR that gives backing to the percentages in Article 159. Reducing this column to zero collapses the average of transfers even if the IPI remains.
As the extra quotas for July, September, and December are calculated based on the collection of IR and IPI, the elimination of IR would also reduce these seasonal reinforcements that many municipalities use to pay 13th salary, suppliers, and expenses for education and health.
Can We Abolish The IR Without A Legal And Fiscal Plan B
Any measure that reduces or eliminates taxes with a billion-dollar impact must comply with Article 14 of the LRF. The rule requires presenting an impact estimate and compensation, either by increasing other revenues or cutting expenses. Without compensation, the renunciation cannot be sustained from a legal perspective and may jeopardize fiscal goals.
Even if an ordinary law is passed aiming to zero out the IR, the machinery of transfers is in the Constitution. Structural changes would require a Constitutional Amendment to redefine the bases of Article 159 and the design of the extra quotas. The Senate has already noted, at different times, the constitutional nature of these percentages, reinforcing that it is not a government decision, but a federative pact.
There is also the tax transition underway following EC 132/2023, which creates the new CBS and IBS system. This reform reorganizes consumption taxes, but does not automatically replace the base of IR and IPI that feeds FPE and FPM. Any attempt to abolish the IR would need to specify, concretely, what new base would support the transfers to States and municipalities.
In summary, without Income Tax, the first impact falls on municipalities and States that depend on the transfers. The serious discussion boils down to three objective questions: what is the compensatory source, how to amend the Constitution to preserve FPE and FPM, and how to comply with the LRF without disrupting the balance of public accounts. Without answers to these three keys, the risk is of local cash collapse within weeks.
And you, do you think that eliminating the Income Tax would bring more financial freedom to citizens or open a dangerous hole in public accounts, drying up FPE and FPM and affecting services such as health, education, and security in your municipality? Share your opinion in the comments!
Esses serviço já estão precários, o desperdício do dinheiro público e a roubalheira caso fosse possível terminar era uma fonte suficiente e necessária para compensação e o trabalhador e os aposentados agradecem.
É possível tranquilamente, basta cortar gastos com parlamentares, judiciário e parar de inventar cargos e pastas. Endurecer mais as leis para peculato, o roubo aos cofres públicos são de bilhões.
Para não secar os caixas, basta se fazer uma reestruturação da administração pública, e adequando os salários e cargos a realidade do povo brasileiro. Aliás, de cara vemos que tem gente demais trabalhando e não se vê nada de bom saindo.