States can reduce diesel taxation to avoid greater losses with ICMS project

Bombarded with proposals that seek to limit the collection of ICMS on fuels and energy, the state finance secretaries indicated this Monday (30) that they can give in and reduce diesel taxation while gaining time to discuss projects with the greatest potential for damage to state finances.

The gesture made by the secretaries in a meeting with the president of the Senate, Rodrigo Pacheco (PSD-MG), includes a proposal to overturn the fixed rates on diesel that would take effect on July 1 and are being questioned in the STF.

A meeting of Confaz (National Council for Finance Policy) should take place this Tuesday (31) to decide on the adoption of charging the ICMS on diesel on the moving average of prices for the last 60 months, exactly as the federal government and the Congress.

The proposal faced resistance from state secretaries, but mounting pressure led to the decision to make a strategic move in an attempt to avoid even greater losses. The adoption of the moving average would take place until the end of the year.

“We don’t want to keep insisting on technical convictions any longer,” said the Secretary of Finance of Pernambuco, Décio Padilha, who also presides over Comsefaz, a collegiate body that brings together state secretaries.

“We are going to work on the possibility, and many secretaries agree with this, of revoking Agreement 16 in its entirety”, said Padilha. Agreement 16 is the one that set a fixed rate of R$ 1.006 per liter of diesel, with adjustment factors that, in practice, were used for each state to give a discount and maintain the old rate.

The federal government, in turn, hoped to force a reduction in the ICMS on diesel and considered the regulation a dribble of the law passed in Congress in early March. The expectation of this wing is that the measure can guarantee some relief in the price at a time of high oil prices.

With the revocation of the agreement, the states would start to charge ICMS rates on an average of diesel prices in the last 60 months – which would still bring temporary damages to the collection, but in a smaller magnitude than the R$ 83.5 billion in losses with a permanent ceiling for ICMS.

“It’s a very strong loss, but better it than being unfeasible [com o teto para ICMS]”, justified Padilha. “We hope to have a more constructive environment with this gesture,” he said.

After the meeting with the secretaries, Pacheco indicated that the new posture of the states will be taken into account in the proposed discussion that establishes a limit for the ICMS. On the other hand, the president of the Senate made it clear that he was committed to the president of the Chamber, Arthur Lira (PP-AL), and will not shelve the project already approved by the deputies.

“What impressed me a lot was the good will of the secretaries in relation to a consensus regarding the application of the complementary law 192 [que trata da tributação sobre combustíveis]. This provision that the secretaries have and the states have to be able to set the ICMS rate for diesel from the moving average that appears in the complementary law 192 for the transition period”, said Pacheco.

The text of the project that creates a ceiling for ICMS approved in the Chamber classifies fuels, natural gas, electricity, communications and collective transport as essential goods and services. With this, it would be worth understanding the STF that limits the incidence of the tax to these items to a range of 17% to 18%, well below the current rates (some even exceed 30%).

This Monday, Pacheco said that the text will go straight to the plenary, skipping the process by the Senate’s thematic committees, and should be voted on by the House “during June”. On the other hand, he sought to assuage criticism of haste and guaranteed that the procedure will take place “in the necessary time” for senators to be able to build a good text.

“Obviously, in relation to this specific project, it is the beginning of the dialogue that will not last long, we are going to seek very quickly to have a definition by the Senate regarding this project, which will be guided in the Senate for deliberation of the majority, to take advantage or reject “, said Pacheco.

The proposal’s rapporteur will be Senator Fernando Bezerra Coelho (MDB-PE), who was until the end of last year government leader in the Senate. A working group was formed with the rapporteur, two other senators —Davi Alcolumbre (União Brasil-AP) and Jean Paul Prates (PT-RN)— and five state finance secretaries to debate changes.

According to Bezerra, the signaling given by the states is “important”, although one thing is not conditioned to the other. According to him, it is likely that the text of the project that limits the ICMS will undergo changes.

Bezerra added that he should increase the compensation for the states to cover part of the losses. In the version approved by the Chamber, a trigger is triggered when the global collection of the state ICMS falls by more than 5%, and the amounts are used to reduce debt with the Union.

The mechanism is criticized by the secretaries because the global fall of ICMS is unlikely, given the good performance of the collection in other areas. In addition, they complain that some states do not have large debts with the Union and would be left without compensation.

“The idea is to build, together with the Chamber, a text in which the effects on the finances of the states can be mitigated. I think the Chamber has already identified a path for this. In the text, the Chamber opens a space for possible compensations. that the wording can be improved, I think we can go a lot deeper into this field of compensation so that we can have a balanced solution”, said Bezerra.

Pacheco estimates that the proposal will be approved throughout the month of June. “It’s good that the rapporteur says the schedule, but tomorrow [terça-feira, 31] a meeting between the rapporteur Fernando Bezerra and the secretaries has already been scheduled, a more working meeting, with the text in hand to identify what is already seen as necessary to be considered”, he added.

The Senate president said he should meet with governors later this week to discuss the issue. Rapporteur Bezerra, in turn, will also have a virtual meeting with representatives of Comsefaz. A new meeting, this time in person, in Recife (PE), should be held next week.

The rapporteur estimates that it will be possible to construct a text in the next week or the following.

The proposal that limits state taxes on fuel and energy initially faced resistance from senators, as they were closer to the governors. However, these parliamentarians admitted that it would be very difficult to vote against a measure that reduces taxes and proposes to lower fuel prices in an election year.

Therefore, there was an initial articulation so that the process could take place with a lower speed than in the Chamber of Deputies and that the text expand the measures to compensate the states.

Tax reform

The Senate president also ruled out that the Senate will analyze the tax reform proposal in the House in the coming days.

In yet another offensive by Pacheco and the president of the CCJ (Constitution and Justice Commission), Davi Alcolumbre (Brazil-AP Union), the commission included the so-called PEC 110 on the agenda for this Tuesday’s session (31).

Throughout the day, rumors arose in the Senate that, if approved, the proposal could go directly to the plenary on the same day, which was later discarded by Pacheco.

“The PEC 110, once appreciated in the CCJ, will then come to the presidency, there will then be a preparation of the Senate agenda, without haste, without surprise, allowing amendments to be made in the plenary, there will be no kind of haste in this, out of respect for the senators Tax reform is perhaps the federation’s most comprehensive topic. We cannot vote overnight,” he said.