Brazil's waterworks tax breaks no panacea, says congressional advisor

Brazil's plan to exempt PIS social integration tax and Cofins income tax on basic water and sanitation investments over the next five years may not be as good as it seems, according to local economist and congressional advisor Roberto Piscitelli.

On June 7, the social affairs commission, CAS, approved a bill which exempts the taxes over the next five years for companies which increase investments in the sector. The proposal is yet to be analyzed by Brazil's committee of economic affairs, CAE.

"It is difficult to say whether or not these tax breaks would actually stimulate investments, one of the main criticisms of the new policy" said Piscitelli who is a legislative counselor for Brazil's lower house.

Passing the bill could motivate sector spending to a certain extent but what entrepreneurs really want is return on investment. As such, this new policy should be accompanied by a clearer definition of goals and a systematic enforcement plan making sure these goals are met, he added.

Besides providing potable water, there is no doubt that increasing investments in the sector would bring very important social benefits such as reducing diseases and improving overall public health.

However, according to government estimates, the tax breaks could result in annual revenue losses that could reach nearly 3bn reais (US$906mn), something that could deter passing the bill in light of the country's current economic situation.

Besides seeing no assurance that sector investments will increase in light of tax exemptions, its final approval may fall short as there is not much political will to push for the improvement of basic water and sanitation in Brazil right now, Piscitelli said.

Roberto Piscitelli is also a professor of accounting sciences at Universidade Nacional de Brasil (UnB).