ICMS collection in August falls with tax relief and weak trade

The exemptions approved by Congress on the eve of the elections and the slowdown in the economy brought down ICMS revenue in August.

Last month, there was a decline of 5% compared to the same period in 2021, the first drop in the year in this type of comparison, according to the Confaz (National Tax Policy Council).

If inflation for the period is considered, the loss reaches 13%, according to Comsefaz (National Committee of State and Federal District Finance Secretaries).

ICMS (tax on the circulation of goods and services) is the main state tax. It accounts for more than 80% of tax revenue. Part of the resources is shared with the municipalities. A portion of the collection is earmarked for education and health.

The collection of this tax in the oil, fuel and lubricants sector dropped 19% in the month, the second drop in the year in real terms (considering inflation). In the electricity sector, the reduction was 47% in August, the third consecutive month of decline.

In telecommunications, a sector that has not yet fully passed on the exemption to consumers, the real drop that came to an average of 15% until July was 27% last month.

The data also show a slowdown in the collection of trade. In August, there was nominal growth of 3% in the wholesale segment and 1% in the retail segment. Discounting inflation, sales revenue was stable in July and went into the red in August.

In June, President Jair Bolsonaro (PL) sanctioned the law that set a ceiling of 17% or 18% for ICMS rates on fuel, energy, transport and telecommunications, items classified as essential.

The Federal Supreme Court (STF) had already decided that the four items (fuel, energy, transport and telecommunications) could not be subject to a higher charge, but the Court predicted a transition until 2024. The anticipation was approved by Congress amid to the government’s offensive to help the president’s re-election.

The electoral law prohibits the implementation of new benefits in the year the elections are held, but the Constitution was amended to make this and other measures feasible.

In some states, the fuel tax was as high as 34%. This is the case of Rio de Janeiro, the only one that appears to have a drop in both real and nominal collections (-0.11%) in the accumulated result for the year.

According to the state Treasury Department, the impacts of the loss of ICMS collection in August and September are being analyzed, but the local government says it has guaranteed resources to maintain its activities normally, due to the measures adopted to enter the Regime. of Tax Recovery.

Confaz data, updated until last week, show that, in the year, ICMS collection grows 3% in real terms, with a 1% drop in the energy sector and a 14% increase in fuels. Total tax revenues increased 4% in the period.

Five states have accumulated revenue growth for the year below inflation: Paraíba, Pernambuco, Piauí, Rio Grande do Sul and Roraima.

André Horta, institutional director of Comsefaz, says that the improvement in ICMS collection seen in recent years is artificial, driven by factors such as inflation and fuel readjustments promoted by the federal government, and will not be maintained in 2023, which puts risk the provision of public services.

The expectation, according to him, is that the measures will be reversed by the Judiciary or Legislature, after the elections, with the participation of elected governors. Other countries temporarily changed these prices, but Brazil made a definitive change, he says.

“We hope that, with things returning to institutional tracks after these elections, it will be possible to reverse these measures in any instance, judicial or legislative, so that it is possible to have a more republican conversation about the future of the states”, says Horta.

“If that’s not the case, the governors-elect will have to think about how they will run the states next year. This surplus for 2022 is not sustainable. If the decision is not to change anything, it will have to cut services [para a população].”

According to data from the São Paulo Department of Finance, the collection of ICMS in the state has been decelerating in the 12 months since January. In August, it registered a rise of 6% in real terms. In the first month of the year, it was at 17%. The state accounts for 29% of the national tax revenue.

Preliminary decisions of the STF have allowed some states to offset ICMS losses through discounts on installments of debts with the Federal Government. With this, it is also possible to make transfers to municipalities.