Chamber concludes vote and project that limits ICMS goes to Bolsonaro’s sanction

The Chamber of Deputies concluded this Wednesday (15) the vote on the project that limits the rates of ICMS (state tax) levied on fuel, energy, transport and communications. State Finance Secretaries estimate that the text could represent losses of around R$ 115 billion.

Voting on the project was beset by technical problems. A first attempt to vote on the basic text was made on Tuesday night (14). According to the president of the Chamber, Arthur Lira (PP-AL), there was unanimity and the proposal was approved by 348 votes.

The electronic system, however, showed instability and deputies complained that they could not vote. Furthermore, even after Lira declared the end of voting, the app continued to register votes. On Wednesday, the president of the Chamber annulled the vote. In a new attempt, the basic text was approved by 307 votes to 1 — as it was a complementary bill, it needed at least 257 votes.

Deputies rejected a suggestion that sought to resume the compensation approved by the Senate. The complementary bill now goes to President Jair Bolsonaro (PL) for sanction.

Cutting fuel taxes is the government’s main bet to reduce the price at the pumps and try to contain inflation. With less than four months to go before the election, the rise in prices is one of the main reasons for weariness for the president, in the opinion of members of his campaign.

Bolsonaro has been waging a war with governors, accused of maintaining state tax rates and thus preventing prices from falling.

PLP 18 transforms fuel, energy, telecommunications and transport into essential goods. As a result, they now have a maximum limit of 17% and 18% of ICMS. In some states, such as Rio de Janeiro, this means that the rate can be reduced by half.

The version approved by the federal deputies represents an even more severe defeat for the governors, given that the small gains with the alterations in the Senate were removed from the proposal in the House.

The rapporteur of the proposal in the Chamber, Elmar Nascimento (União Brasil-BA), changed the trigger that allows compensation for states. The original proposal approved by the Chamber provided for compensation whenever the total revenue fell by more than 5%.

The Senate rapporteur, Fernando Bezerra Coelho (MDB-PE), had amended the text to determine that the 5% variation should refer only to the drop in the collection of the four items — fuel, energy, telecommunications and transport. In addition, Bezerra accepted an amendment that provided for the inflation in the period to be considered to determine the variation, a measure that pleased the governors.

Nascimento discarded the changes and resumed the first version, which considers a 5% variation on the entire state collection.

In the evaluation of states, the calculation harms the compensation by disregarding inflation in the period for the calculation of collection. With the increase in prices, they explain, global revenue, if it falls, will fall that will not reflect the real loss of government revenue.

The rapporteur also decided to rescue a mechanism suppressed by senators that prohibited states that already had rates below 17% from promoting increases to reach the limit stipulated in the text. That is, a state that adopts a rate of 15% will not be able to raise it to the level of 17%.

The text approved by the deputies, on the other hand, maintained other measures that give immediate relief to the states. The Senate had determined that the states would be compensated with a reduction in debt payments, in order to facilitate the flow and have a more instantaneous counterpart, and not in the debt stock.

Another amendment by the senators and maintained in the Chamber 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 Senate rapporteur said that five states could 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.

Elmar Nascimento maintained the mechanism that guarantees full compensation from Fundeb (fund for basic education) to pay the constitutional minimum for health and education. The proposal was not included in the main text approved by the senators, but was included after being voted on separately. The rapporteur in the Chamber maintained the change.

The text also includes the measures that had been announced by Bolsonaro to contain the price of fuel, at a time of high inflation and when the president is seeking reelection. The reduction to zero of the Cide-Combustíveis, PIS and Cofins rates levied on gasoline until December 31, 2022. These measures will represent a tax waiver by the federal government of R$ 17 billion.

The rapporteur also specified the CNG (Vehicle Natural Gas) as a product that had a zero rate.

In a note published before the bill was approved in the Chamber, Comsefaz (committee of state finance secretaries) stated that, in addition to not guaranteeing a reduction in fuel prices, “the waiver of approximately R$ 115 billion of ICMS imposed on the directly affects the provision of essential public services to the population, especially the poorest”.

For tax lawyer Samir Nemer, a partner at FurtadoNemer Advogados, the ICMS limitation “is an attempt to throw the bomb in the governors’ lap and get rid of the population’s charge in an election year.” “The truth is that states do not have the scope to forgo BRL 115 billion in collections,” he added.

The text is the first of three proposals articulated between the National Congress and the government, to try to reduce the price of fuel. The second proposal, approved in the Senate also this Tuesday (14), is the PEC (Proposed Amendment to the Constitution) that seeks to maintain the competitiveness of ethanol and other biofuels, in the face of tax reductions for fossil fuels. The proposal provides for a “favored tax regime for biofuels intended for final consumption”.

The other measure, which should be on the Senate agenda next week, provides for the transfer by the Union of up to R$ 29.6 billion to states that agree to zero their fuel rates.