House approves ICMS limit on energy, but states plan to bar text in Senate and even STF

The Chamber of Deputies approved this Wednesday (25) the basic text of the project that limits the ICMS (Tax on the Circulation of Goods and Services) on energy and fuels. In addition, Congress inserted in the text a new attempt to fix the taxation on diesel.

The basic text of the project was approved by 403 to 10, and now the deputies must vote on suggestions to modify the proposal – which then goes to the Senate. The states, however, react to the text and are already talking about barring the proposal in the neighboring House or even in the STF (Federal Supreme Court).

The project is part of an offensive by the president of the Chamber, Arthur Lira (PP-AL), to try to reduce the price of energy in the country, amid the concern of allies of President Jair Bolsonaro (PL) about the impact of inflation on elections.

The text approved this Wednesday classifies fuels, natural gas, electricity, communications and public transport as essential goods and services. With this, it would be worth understanding the STF that limits the incidence of the tax on these items to a range of 17% to 18%.

The Chamber’s final proposal began to provide for compensation to states in case of loss of revenue. For indebted entities, the Union would be authorized to deduct from the value of the installments of the debt contracts the collection losses greater than 5% in relation to 2021. The deduction runs until December 31, 2022 or until the debt runs out.

States in a tax recovery regime will have their revenue losses fully compensated. Debt-free states are left without compensation.

The project also provides for the possibility of compensation to municipalities. “From yesterday [terça, 24] here, there was a great demand from several deputies and mayors, associations of mayors, in the sense that we could also extend this lock to municipalities, given that 25% of ICMS revenue is shared with these municipalities”, said the Rapporteur of the text, Elmar Nascimento (União Brasil-BA) “And we are also extending this guarantee to the municipalities.”

In an official letter, the president of Comsefaz (National Committee of State and Federal District Finance Secretaries), Décio Padilha, criticizes the measure. He states that the impact of the fuel freeze alone will be R$ 37 billion this year and that, from November 2021 to April this year, the frustration of real revenue is around R$ 17 billion.

“Even with this significant loss of revenue, the Chamber of Deputies now intends to approve a project whose financial impact for the states and the Federal District could be between R$64.2 billion and R$83.5 billion per year, which makes it impracticable take this project forward”, he said.

“These values ​​represent minimum levels, to which other factors can be added that make them more serious, if the repercussion of the freeze or even higher limits on fuel prices are considered.”

André Horta, institutional director of Comsefaz, says that the compensation provided for in the project is based on a trigger that should not be triggered. He says that ICMS revenues have naturally grown at an annual rate of more than 15% in many states — so, even with the tax cut to be applied by the project, governors would end up with no counterparts.

According to him, the strategy now will be to prevent the project from advancing in the Senate and, if applicable, in the STF. “Wherever,” he said.

Earlier, before the new report, the FNP (Frente Nacional dos Prefeitos) had estimated a loss of revenue of R$ 21 billion if the municipalities were not covered by the compensatory measure.

The report also changes the complementary law that deals with the levy of ICMS on diesel to provide that the tax calculation base will be, until December 31 of this year, the average price of the last five years.

The law, approved by the National Congress and sanctioned by President Jair Bolsonaro, provides for the adoption of a single ICMS rate on fuel, to be regulated by Confaz. The collegiate is formed by representatives of the Ministry of Economy and the state secretaries of Finance.

States had tailored a maximum tax rate with individual “equalization factors” for each state — in practice, they could keep the charge at the same levels as before the new law.

The format was the way found to comply with the law without imposing a burden on governors, be it financial (due to the loss in revenue), or political (to increase the tax burden in their states). For the federal government, however, the regulation represents a circumvention of the law.

The government appealed to the STF. On Tuesday, Minister André Mendonça gave an “unextendable” period of 48 hours for all states and the Federal District to provide information in the action in which the government tries to guarantee the reduction of ICMS charges on diesel by the states.

The project approved this Wednesday is a new attempt to fix the taxation on diesel.

The text also includes changes in the supervisory councils of the tax recovery regimes of the states to provide for three holders with professional experience and technical knowledge in the areas of public finance management, judicial recovery of companies, financial management or judicial recovery of companies, financial management or fiscal recovery of public entities.

Lira and Minister Paulo Guedes (Economy) make a joint effort to try to reduce the resistance of Senate President Rodrigo Pacheco (PSD-MG) to the text.

Guedes’ team argues that the governors have full boxes and that it is necessary to return this revenue directly to the population instead of departing for solutions seen as ineffective – such as the creation of subsidies. Therefore, cutting taxes is considered the most appropriate act.