PEC of Fuels limits BRL 29.6 billion in tax cut compensation

The PEC (Proposed Amendment to the Constitution) on Fuels will allow a transfer of up to R$ 29.6 billion for the Union to subsidize the reduction of state taxes on diesel, natural gas, LPG and ethanol.

The value was disclosed this Wednesday (8) by Senator Fernando Bezerra (MDB-PE), who will be the PEC’s rapporteur in the House. However, the figure should not be made explicit in the text of the proposal. The Ministry of Economy, which was looking for a tie to stop the cost of the measure, fears a kind of blank check.

The subsidy to the states alone can cost more than the R$ 25.3 billion that the Union will receive with the privatization of Eletrobras, the largest energy company in Latin America.

The text of the proposal must be presented by the government leader in Congress, Senator Eduardo Gomes (PL-TO). According to Bezerra, the states will not be obliged to join, but will only receive the resources if they accept to cut the stipulated taxes.

The measure was announced on Monday (6) by President Jair Bolsonaro (PL) as a government bet to reduce fuel prices at a time when the Chief Executive appears in second place in polls.

The high price of these products is pointed out by members of the president’s campaign as an obstacle to his re-election.

At the time, Bolsonaro said that the compensation would be paid if the states zeroed out ICMS rates on diesel and cooking gas.

Now, the text detailed by Bezerra at a press conference will also provide for compensation for the reduction to zero of the tax on natural gas and the cut in the rate on ethanol to 12%.

The amounts will be paid in five monthly installments, proportionally to the participation of the states and the Federal District in relation to the total ICMS collection in 2021 on the products targeted by the measure.

The text, according to the senator, guarantees a transfer that is also proportional to the municipalities, as well as the linking of resources to the Fundeb calculation base, a fund that finances basic education actions.

The value of the transfer is greater than the R$ 25.7 billion that were being negotiated by the technicians of the federal government.

as showed the Sheetthe Ministry of Economy has been closely monitoring the next steps of the National Congress in the discussion of proposals, with the aim of preventing the bill from getting even higher.

The limit stipulated by the Minister of Economy, Paulo Guedes, for the set of measures is an impact of R$ 50 billion.

In addition to the subsidy to the states, the federal government will zero PIS/Cofins rates on gasoline and ethanol and Cide rates on gasoline. Preliminary calculations point to an effect of R$ 16.8 billion from these measures.

In an interview with journalists, Bezerra also presented the details of his opinion on the complementary bill that sets a ceiling for charging ICMS on goods considered essential, such as fuel, energy, transport and telecommunications.

Under the proposal, already approved in the Chamber of Deputies, states cannot apply percentages greater than the modal rate, which is between 17% and 18%, on these items.

Together, the two proposals (PEC and bill) could provide a reduction of R$ 0.79 in the liter of diesel and of R$ 1.65 in the liter of gasoline, according to simulations cited by Bezerra. He said he was “optimistic” about the possibility of both texts being appreciated next Monday (13).

“The government believes that these measures could make Brazilian inflation lower than the American one after all the years in history,” said the rapporteur. Brazilian inflation accumulates a high of 12.13% in the 12 months through April. The consumer price index in the United States increased 8.3% in the same period.

“It’s an attempt. If you ask me ‘will it work?’. I don’t know, but I hope it works”, stated Bezerra.

The states, contrary to the measures under discussion, contest the effect on prices and claim that the measures could quickly be annulled if Petrobras announces a new readjustment in the refineries.

In a setback for the governors, who were trying to postpone the structural reduction of ICMS rates to 2024, Bezerra decided to keep the “backbone” of the project approved by the House. “The decision that comes within my report is for the immediate effectiveness of the [novas] rates, as approved by the Chamber”, he said.

The states point to a risk of a loss of R$ 115 billion in the collection. In the interview, Bezerra refuted the governors’ argument and said that, according to Treasury calculations, the drop in revenue should be R$ 65 billion.

In addition, the rapporteur signaled small concessions to state governments. He modified the trigger to be triggered when the drop in collection is greater than 5%. In the Chamber, the mechanism was applied taking into account the total revenue — which made the instrument more difficult to launch. In the new text, the proposal is to consider only the possible drop in collection with the items targeted by the rate change.

Bezerra also said that he will make the compensation more immediate. When the trigger is triggered, states that have debts with the Union will be able to deduct the amounts of debt installments paid monthly. Before, the proposal was to write off the stock, with no guarantee of immediate relief in the cashier.

Another amendment provides for the inclusion of mechanisms to compensate states that have losses greater than 5%, but do not have debts with the Union. In 2023, they will receive part of the federal government’s share of the CFEM (Financial Compensation for the Exploration of Mineral Resources). The rapporteur said that five states can fall into this situation, and the impact will be up to R$ 3 billion.

This group will also have priority in obtaining new loans from banks and other institutions.

“If a scenario of deterioration in state public accounts is confirmed, [a proposta] has an effective, safe compensation mechanism that will guarantee the sustainability of public accounts”, said the rapporteur.

In recent days, governors and finance secretaries have intensified hand-to-hand combat in an attempt to seek a less unfavorable agreement around the project that sets a ceiling for ICMS collection. The Federal Senate is often seen as a House linked to the states and sensitive to the appeals of governors.

On Tuesday night (7), five heads of state executives, including Claudio Castro (PL), from Rio de Janeiro, and Romeu Zema (Novo), from Minas Gerais, in addition to a vice governor and ten secretaries were with the president of the Senate, Rodrigo Pacheco (PSD-MG) and with the rapporteur to ask for changes.

“The states made it clear that they are willing to make the sacrifice, but that this sacrifice cannot make public policy, health, education, infrastructure, in short, all public policy that is made unfeasible,” Castro said.

This Wednesday morning (18), a new group of six governors, including Rodrigo Garcia (PSDB), from São Paulo, and Rui Costa (PT), from Bahia, in addition to six secretaries participated in a new meeting, but the initiative had no effect.

“I don’t know if the governors support it, but the governors have greatly expanded their understanding of the decision that will be taken. [pelos senadores]”, said Bezerra.

Bezerra also included in the text the zeroing of PIS and Cofins rates on gasoline and ethanol, measures announced by Bolsonaro on Monday to try to lower fuel prices.

UNDERSTAND THE MEASUREMENTS

What’s in PLP 18?

Structure already coming from the Chamber

• It considers fuel, public transport, electricity and communications essential goods and services (which makes the items have an ICMS ceiling of 17% to 18%, due to the STF decision that prevents higher than general taxation for essential items) .

• Calculation base for state diesel taxation until December 31 will be the average of the last 60 months

• Compensation for states and municipalities for possible losses until December 31, 2022

• Security for public managers to execute the measure in disagreement with the LRF and LDO

Additions made by the Senate:

• Text adjustment to exempt the increase in ICMS rates

• Expansion of security for public managers to carry out the measure in disagreement with the LRF and LDO

• Adjustment of the compensation mechanism

• Reduction to zero of PIS/Cofins and PIS/Cofins-Import rates on ethanol

• Reduction to zero of PIS/Cofins and PIS/Cofins-Import rates on gasoline

What is in the Fuels PEC?

• Federal financial assistance to states and municipalities: limit of BRL 29.6 billion

• Authorizing conditions:

• ICMS zero rate for diesel, gas and LPG

• 12% reduction in ICMS for ethanol

• Period: July 1, 2022 to December 31, 2022

What is in the biofuels PEC?

• Forecast for biofuels to remain taxed lower than fossil fuels, preserving the same tax difference (or greater than a) observed in May 2022 for at least 20 years