Proceedings of 6th Annual American Business Research Conference
9 - 10 June 2014, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-52-8
The Influence of Property Tax on Municipality's Finances of Sobral –
Ceara State- Brazil
Nazareno Sousa Araújo, Ludmila Apoliano Gomes Albuquerque and Janiele Matos
Sousa
Every municipality needs Revenues to manage their expenses in the Budget. The Derived
Revenues, the focus of this research, are permanent, non-refundable, raised through taxes.
(DENARI,1996). The research aims to show the influence of tax collection at Sobral city through
an analysis of Property tax's evolution. Sobral has had a relevant economic development in those
late years, although it is located in Northeast of Brazil, an underdeveloped region. It has around
200.000 inhabitants and Gross Domestic Product around 1,2 billion dollars. it was made a
bibliographical and documentary research, based on Rocha (2008) author, evidencing Property
Tax's evolution within ten years and its impact at Sobral's revenue. Property Tax is described in
article 32 of National Tax Code and also in article 156, item I, of Brazilian Federal Constitution.
Classified as taxable person the owner, holder and/or possessor, not considered as taxpayer, the
tenant. In 2003, Sobral's revenue was US$1.592.232,24 with municipal taxes, just Property tax
collected US$ 594.821,05, representing 37,35% of all. In 2013, the total revenue was US$
9.614.010,91, in which 16,97% is Property tax. In the past 10 years, Property tax's revenue
decreased around 20% if compared with total municipality revenue, however, its collection
increased 274,28% along the same period. We can conclude Property tax has an important
influence in Sobral's revenue, contributing with taxes collection increase that was more than 600%
in ten years, showing a better control, making possible greater investments.
Keywords: Property Tax, Sobral, Revenue
1. Introduction
Every municipality needs financial resources to realize their projects. For that, there are public
revenues that can be achieved through tax. Property tax is classified as a Municipal Tax that
contributes to the finances of the cities. Sobral is a case of municipality from Northeast Region of
Brazil that has showed a relevant development, what becomes important to study about the
influence of Property Tax’s collection in Sobral City.
This research aims to obtain data that represents Property tax percentage out of the total of
municipal tax’s revenues. This way, analyze how Property Tax collection has worked and
demonstrate through those data its evolution and its importance to Sobral’s economy.
For this work was made a research about a case study, being analyzed Sobral’s Property tax
collection, and for a better theoretical base, it was also made a bibliographical research in books and
papers.
The research is defined as descriptive, because it aims to show characteristics from the case
study, and also quantitative, taking numbers to express information to be classified. It is qualitative,
evidencing data and establishing meanings to the research and answers to the problems.
_________________________________________________________________________
Nazareno Sousa Araújo, Department Accounting, Vale Do Acaraú State University, Ceará, Brazil. Email:
naz_sousa@hotmail.com
Ludmila Apoliano Gomes Albuquerque,
Janiele Matos Sousa,
Proceedings of 6th Annual American Business Research Conference
9 - 10 June 2014, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-52-8
First, this work will explain what are public revenues, describing the types of taxes, focusing
the study on Property Tax, writing details and aspects present in the Sobral’s Municipal Law. It also
will be described about Sobral’s economy, how Sobral has collected its taxes, mainly about Property
tax and how it has impacted Sobral’s finances.
2 PUBLIC FINANCES
The State as public agency that represents the populations aims to attend political, social and economic
needs of society. However, to cover all those fields in its projects, the government needs resources, what is
viable through public revenues.
In accordance with Denari (1996), entrance is a value collected to the public funds. It can be classified
as refundable, when it goes back to its origin, an example of refundable revenue is Public Loan, or nonrefundable, in this case the values collected comes from taxes paid for taxable people.
We can conclude defining Revenue as a Money collected to State in a definitive way without refund. It
can be shared into two groups, original and derivative revenues. Derivative Revenues comes from the sell of
public properties or economic exploration from government activities. Derivative Revenues is obtained
through State order, acting in unilateral ways with its power on population’s heritage, colleting such revenues
through taxes.
3 TRIBUTES
To understand how Property tax works, it is necessary to define what taxes are. First, they are classified
as derivative revenues and Brazilian National Tax Code in its articles 3 says: Tribute is all cash benefit, in
money or whose value can be represented, not considered a sanction of wrongful act, introduced by Law and
covered through administrative activity totally linked.
From the analyses from this concept based on Rocha (2008) is highlighted five important points about
tributes that are: cash benefit, obligation, legality, not a sanction of wrongful act and covered by administrative
activity totally linked.
Cash benefit means that all tribute must be paid in money. Nowadays, the legislation does not allow the
change for objects or goods, only if it is paid in current currency. The obligation of payment of tribute is
another point that Law impose, it is not optional. The legality is related to fact of tributes must be introduced
by Law, charged according to what Law describes in its text. To charge Tribute is not a punishment. The duty
of paying the tribute comes from a specific tribute event that must be included in Law. Charge tribute through
Proceedings of 6th Annual American Business Research Conference
9 - 10 June 2014, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-52-8
administrative activity totally linked means that it is not allowed to government authorities the autonomy to
determine values, ways and the people that might be charged. All those aspects are responsibility only of tax
authorities, based on laws.
3.1 Taxes
Taxes are tributes that collect the biggest revenues if compared with the others municipal tributes.
Important components that compound Tax are: case of incidence, tax base, active subject, passive subject and
aliquot.
According to 1988 Brazilian Federal Constitution taxes were shared into their competences, what
divided government responsibility in municipal, state and federal. Such division defines which agencies have
the power of taxing a specific tax within its territorial limitation.
Denari (1996) says that all those tax can be classified in three groups:
-Taxes on heritage are Rural Property Tax and Property Tax;
-Taxes on income that is the specific case of Income Tax;
- Taxes on sharing of wealth are the ones classified on production and exchange of goods.
4 SOBRAL MUNICIPALITIES – CEARA STATE
Sobral is located in North of Ceara State, 235 kilometers far from Fortaleza Capital. It has become an
example of economic development to the others cities situated in countryside of Ceara.
Sobral was born in 1841. Today its population is about 200.000 inhabitants. Rodrigues (2013) points
that Sobral is the fourth economy of Ceara State with Gross Domestic Product of 1,2 billion dollars, what has
called attention to new investments, mainly industries. Sobral also stands abroad in foreign trade, being the
only city of countryside that is close to the Capital State in exportation volume, according to Brazilian Institute
of Geography and Statistics (IBGE)
For Prado (2012) Sobral also highlights not only for its population number, but, mainly for its industrial
activities and services that makes Sobral an economic reference to the 50 closest municipalities from North of
Ceara. The installation of big industries had influenced the commerce and services growth. For that, was
necessary to arrive in the city skilled human resources, such as techniques, engineers, academic professors,
what resulted in a bigger power of purchasing.
Proceedings of 6th Annual American Business Research Conference
9 - 10 June 2014, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-52-8
In 1998, Veja Magazine pointed Sobral as one the 10 best cities to live in Brazilian countryside. In
2000, Exame Magazine elected Sobral as one the 30 best cities to live in Brazil. A research made for a FGI
English Magazine, from Financial Times group, pointed Sobral city as one of 10 small cities from Americas
with the best cost-effectiveness to foreign investments. In its recent study, American city of the Future
2011/2012, explored data from Anglo-Saxon and Latin America, and in Sobral was positioned in sixth in the
rank of the best cities with best cost-effectiveness, with population between 100.000 and 250.000 inhabitants.
5 PROPERTY TAX
Property Tax is described in article 32 of National Tax Code and also in article 156, item I, of Brazilian
Federal Constitution. Classified as taxable person the owner, holder and/or possessor, not considered as
taxpayer, the tenant. Each year on January First, happens the tax event, what comes the obligation to be
charged.
The article 33 of National Code Tax says that the tax base for Property Taxi is the standardized value of
the property.
The base tax can be updated according to monetary correction and if the value it is bigger than the
correction value, that decision must be approved in Law.
Machado (2004) in its words says that Property Tax stimulates a social function of property and its use
according to urban law. This tax can have progressive aliquot along the time, since it is described in Law,
related to property value and different aliquots depending on localization and property use. The aliquot from
one year to the following year cannot be doubled, respecting the maximum value of 15% from last year.
The value collected from Property Tax does not have a specific destination with municipal cost,
according to art 167, IV of Federal Constitution; it is not allowed relation among revenues of taxes to agencies,
funds, costs, only if the destination is to health or education.
5.1 Sobral’s Property Tax Collection
In Sobral, Property Tax began to be collected from Tax Code through Law 43/95 of Aldenor Façanha,
in which treated about tax system in a simple way. In 1997, The Municipal Tax Code was implanted through
002 Supplementary Law, structuring the municipal collection, organizing the municipal finances, giving a
better support. In the following year, it was also implanted the real estate cadaster.
Proceedings of 6th Annual American Business Research Conference
9 - 10 June 2014, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-52-8
On January 1st of 2014, came in force the new Municipal Code Tax, the Supplementary Law 39/2013
from December 23th of 2013, as well as the Law 40/2013, that updates the Property Taxes due to Property Tax
charging.
Those Laws come to make the finances’ administration more effective that aimed the city development
through investments worked by Sobral and not only from financial resources derived from federal or state
government.
6 SOBRAL’S PROPERTY TAX COLLECTION ANALYSES
From 2001 on Sobral implanted an Informatics System to control Property Tax collection and all
information related to it, what made a considerable difference on the process, making it more effective, and
also it was worked the creation of others systems helping government in the control, developing new policies,
making possible the revenue growth.
In 2003, Sobral's revenue collection was US$1.592.232,24 with all municipal taxes, including Property
Tax, but if we separate just Property tax value, it collected US$ 594.821,05, what represents 37,35% of all
revenue. In 2013, the total municipal revenue was US$ 9.614.010,91, in which 16,97% was the Property tax
participation.
In the past 10 years, Property tax's revenue collection decreased around 20% if compared with total
municipality revenue, however, its collection increased 274,28% along the same period. We can conclude
Property tax has an important influence in Sobral's revenue, contributing with taxes collection increase that
was more than 600% in ten years.
6 CONCLUSIONS
Housing sector Increasing in those late years is explained for the financial perspectives of Sobral
population, the city is more attractive for the commerce, generating more employment with industries arriving,
and also for the students, that live in near cities, come to live in Sobral to study in schools and Universities,
contributing to the city development, resulting in bigger search for properties.
Property Tax has presented a significant growth, what mean that government has developed tools to
organize its finances. Sobral’s public finances have changes so much a long those ten past years, as we can see
through this study. Government worked to control the opportunity of investments and developed better ways to
collect revenues, according to Law.
Proceedings of 6th Annual American Business Research Conference
9 - 10 June 2014, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-52-8
An important observation is that Property tax colleting together with the others municipal tax represents
more than half of the municipal total revenue. Even though Property Tax revenue is not the biggest revenue
collection of Sobral, it is an important value, that has represented an opportunity to government execute its
Budget, develop plans and offer to population services that provides security, health and education.
6 REFERENCES
BRAZIL. Constitution (1988). Brazil Republic Federative Constitution.
DENARI, Zelmo. Tax Law Course. Rio de Janeiro: Editora Forense, 1996.
RODRIGUES, Jessyca. Sobral becomes traget of industrial investiments. Diário do Nordeste Newspaper.
Available
in:
<
http://diariodonordeste.verdesmares.com.br/cadernos/negocios/sobral-vira-alvo-deinvestimento-industrial-1.113309 > From 03.21.2014.
ROCHA, João Marcelo. Tax Law. Edtion 6th.
Supplementary Law n. 002 from 12/19/1997. Sobral’s Tax Code.
Supplementay Law n. 39/13 from 12/23/2013. Sobral’s Tax Code.
PRADO, Ticiane. Sobral’s demand for properties. Available in < http://www.secovice.com.br/index.php/noticias/798-de-olho-em-sobral-cidade-atrai-atencao-e-torna-a-demanda-por-imoveismaior-que-a-oferta.html > From 03.21.2014
Proceedings of 6th Annual American Business Research Conference
9 - 10 June 2014, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-52-8