What is FPM and FPE?
The Brazilian Constitution provides that part of the money collected from federal taxes must be passed to the states and municipalities. This article will give a brief overview of the Participation Funds, its calculations and distributions.
FPM and FPE are the most significant transfer of financial resources from the Union to the states and the municipalities. As provided in the Constitution of 1988, annually, the Federal Government passes part of its revenue collected from the Income Tax (IR and IRPJ) and the Tax on Manufactured Products (IPI) to the states, the Federal District and the municipalities.
The distribution of funds among the federal entities exists as a mechanism to reduce social inequalities among the Brazilian regions and to promote the socioeconomic balance between the states and municipalities. The National Treasury is the institution responsible for enforcing the constitutional dispositions of this law and making the transfers.
Fundo de Participação dos Estados e Distrito Federal (FPE)
The State Participation Fund is distributed equally between the 26 Brazilian states and the Federal District. The fund is composed of 21.5% of the total IPI and IR collection. The money is distributed b in direct proportion to each State population and size, and in inverse proportion to per capita income. The coefficient is established by the Union's Account Tribunal, which is also responsible for overseeing the fund distribution.
Currently, the FPE is divided in two consignments:
85% of the resources is distributed to the states of North, Northeast and Middle-East regions and the Federal District
15% of the resources goes to states of Southeast an South regions
The Southeast and South regions are the richest and more productive in Brazil. That is why they receive less money from the FPE, as an attempt to even out the differences between the states.
However, some states are still not satisfied and are proposing that the FPE distribution should be made based on each state per capita income. At the moment, there is fussing about the Brazilian need for a Fund Reform.
Fundo de Participação dos Municípios (FPM)
The Municipality Participation Fund comprehends 23,5% of the collected money from IPI and IR. The FPM is divided according to the following percentages:
10% goes to the state capitals municipalities
86,4 % goes the the other municipalities
3.6 % goes to the state Reserve Fund to be redistributed to cities with more than 150.000 inhabitants
FPM is divided among the municipalities according to the their number of inhabitants. Each municipality has an individual distribution coefficient, which is calculated by the IBGE. Also, each state is obliged to pass 10 % of its FPE to the municipalities. The FPE is the main source of revenue for most of the Brazilian municipalities.