Differences between taxes and contributions
In Brazilian Portuguese, the money that people pay to the Government is called Tributo.
There are three different kinds of Tributo: impostos (from the French impôt; this site translates impostos to Taxes), taxas (that this site will translate as Fees) and contribuições (that this site translates as Contributions).
This may cause some confusion to English speakers, because in English there is a tendency to refer to all kinds of Tributes as Taxes.
Taxes = Tributos
Taxes = Impostos
Fees = Taxas
Contributions = Contribuições
A Tax is a tribute which doesn't create any obligation to the State. The State doesn't own you anything for your paying taxes. Your taxes are your share to maintain public services.
You pay taxes because, according to the law, you have financial conditions to pay.
For example, a law determined that whoever owns a house has financial conditions to pay a tax on real estate ownership. The owner of the house pays the tax, but he can not demand his neighbourhood to be better maintained, on the grounds that "I paid high taxes".
Conversely, the Government can not assign specific destinations to tax funds. Governments can not determine that "all taxes paid by car owners shall be destined to streets improvements". All funds derived from taxes must be available for general purposes.
A Fee is a tribute which is linked to either a service rendered by the State or to a law enforcement action by the State.
The Fees return to the fee payer, either as a direct or as indirect service.
For example, several municipalities created a waste dumping fee. The city government maintains a fleet of trucks which go around the neighbourhood collecting wastes and transporting it to treatment deposits. The total cost of this service is calculated and then divided by the tax payers who live in the neighbourhood which benefits from the service.
Example of fee related to law enforcement: everytime a driver renews the yearly license for cars, he must pay a Car License Fee. This fee will be used (supposedly) by the Government to check if car and owner conform with laws (safe equipments, environmental restrictions, payment of fines, etc).
Notice that tax and fee do not confuse. The owner of a car pay automobile taxes just for owning the car; and he will pay a license fee for the service of having his car checked.
Despite the name, a Contribution is also a compulsory payment. Only the Federal Government can create Contributions.
The main difference between a tax and a contribution is that, while the Government can not assign specific destinations to taxes, they must do it with contributions.
All social contributions, for example, must be used to social security and social assistance. The Government can not use a social contribution to pay salaries, for example. The budgetary law must follow several restrictions to guarantee that Contributions are spent the way they are supposed to.
There are two kinds of Contributions: social contributions (contribuições sociais) and economic contributions (contribuições de intervenção no domínio econômico).
Social contributions include Cofins (Contribution for Funding of Social Security), CSLL (Social Contribution on Net Profit), PIS (Program for Social Integration) and others.
Currently (late 2008), the only relevant economic contribution is CIDE, a Contribution paid by whoever buys fuel, and whose proceedings must be directed to the improvement of Federal roads.
From the point of view of taxpayers, there are not major differences between Tax and Contribution.
Take, for example, IRPJ (Income Tax for Corporations) and CSLL (Social Contribution on Net Profits). They are both paid by the same taxpayers, the taxable events are the same (i.e., a lucrative economic transaction), the money is paid the same day to the same creditor.
The difference is that the Government can do whatever they want with money from IRPJ, but must use money from CSLL towards Social Expenses.
Contributions are very convenient to the Federal Government.
First, contributions are a means to make more money. The Constitution forbids the creation of new taxes, but is less restricted in regards to contributions. A few years ago, the Government attempted to create a Tax called IPMF (Provisory Tax on Financial Transactions), which was ruled inconstitutional by the Supreme Court; then, a few years later, the Government came up with a Contribution called CPMF, and this one was considered constitutional (and lasted until 2007).
Besides, the Constitution determines that part of Federal Taxes must be shared with States and municipalities; with Contributions, all proceeds belong to the Federal Government.
As a consequence, the Contributions have been growing faster than Taxes and Fees over the past decades. See actual taxes and contributions collected in 2007 and 2008.
Back to Top