States lose R$ 14 billion in ICMS in the 3rd quarter with tax exemptions and weak trade

The exemptions promoted by the federal government and Congress on the eve of the elections and the slowdown in the economy brought down the collection with ICMS (Tax on Circulation of Goods and Services) in the third quarter of 2022.

There was a decrease of 1.2% compared to the same period in 2021, the first drop in this type of comparison this year, according to the Confaz (National Treasury Policy) Tax Collection Bulletin. If the inflation of the period is considered, the loss reaches 8% or R$ 14.4 billion.

ICMS 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 11% in the quarter, considering inflation. In the electricity sector, the reduction was 38%.

In telecommunications, a sector that has not yet fully passed on the exemption to consumers, the real drop was 28% in the quarter.

The data also show a slowdown in the collection of trade. In the quarter, there was a real drop of 1% in the wholesale segment and 4% in the retail segment.

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. Other countries temporarily changed these prices, but Brazil made a definitive change.

In the quarter, 13 states and the Federal District registered a nominal decline in tax collection, especially Rio Grande do Sul (-14%), Roraima (-7%) and Minas Gerais (-6%).

The list of negative results rises to 22 federation units when considering the correction of values ​​for inflation. There was an increase in ICMS revenue, in real terms, only in São Paulo, Paraná, Amazonas, Maranhão and Mato Grosso do Sul.

Comsefaz (National Committee of State and Federal District Finance Secretaries) assesses that the improvement in ICMS collection seen in 2021 and at the beginning of this year is artificial — driven by factors such as inflation and the readjustments derived from the exchange rate parity policy. Petrobras imports — and will not be maintained in 2023, which puts the provision of public services at risk.

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.