STF authorizes states to postpone discounts of up to R$10 billion on electricity bills

The additional reduction of BRL 10 billion in Brazilians’ electricity bills, which could be one of the trump cards of the campaign for the reelection of President Jair Bolsonaro (PL), should not reach the bills of 22 Brazilian states before the election.

The Federal Supreme Court ruled that the reduction can be made only after state governments have been compensated by the government for revenue losses. Once the compensation is received, the discount would be transferred to the next month’s electricity bill.

If the ICMS discounts —which were unified at 17%— were fully applied, as provided for in the new legislation, the electricity bill of residential and business subscribers in these 22 states would be reduced by 7.38%, according to calculations by Abrace (Association of Large Energy Consumers and Free Consumers).

For the industry, the entity’s membership base, this discount would be lower —5.8%. In total, this would represent something around R$ 10 billion in discounts.

Understand the tax reduction on the electricity bill

The law unified the ICMS on fuels and essential services for all federative entities. In the case of electric energy, ICMS of 17% is now charged.

Furthermore, it exempted sectoral charges for generation, distribution and transmission from this tax, and determined financial compensation in the event of losses exceeding 5% of the previous collection (with ICMS higher than 17%).

Arguing that they would lose revenue, 22 states went to the STF to ask for advance compensation for this portion of the cost that makes up the electricity bill. Technicians from the Finance Departments claim that the law did not make it clear whether, in the case of charges, the compensation by the Union should occur before or after the transfer of the discount to the electricity bills.

At least three states —AC MG and RN— have already obtained a favorable decision from Minister Gilmar Mendes, rapporteur of the actions that are being processed in the Supreme Court, questioning the ICMS rate in the sector and claiming automatic anticipation.

In his orders, Minister Gilmar Mendes allowed advance compensation in what “exceeds 5%, calculated month by month, based on the same period of the previous year and with monetary correction (by the IPCA-E), without charging any charges resulting moratoriums”.

The minister also vetoed the inclusion of the state in any default records. He also decided to prevent the “change or reclassification of [nota de crédito] Capacity to Pay (Capag), basis for evaluation so that the state can borrow in the market.

Although all federative entities apply the new ICMS rate on the energy tariff, only five of them –MG, ES, SP, PR and RS– are automatically exempting sector charges. This group concentrates more than half of the collection. The others appealed to the STF.

In the case file, they claim that states have already lost too much money with ICMS discounts on tariffs, which, in some states, reached 32%.

For them, there were no effective mechanisms to compensate for these losses. In addition, they claim that the law that created the state tax ceiling includes a trigger that allows states to write off debts with the Union, if the measures lead to a drop of more than 5% in total ICMS collection.