Government studies IPI cut to pressure governors to change fuel ICMS

The government is discussing the possibility of making a linear cut in IPI (Imposto sobre Produtos Industrializados) rates as a way of putting pressure on governors to accept a change in the collection of ICMS (Tax on the Circulation of Goods and Services) on fuels.

According to technicians consulted by the leafthe reduction in the IPI can have an impact of approximately R$ 40 billion — of which R$ 20 billion in the federal coffers and R$ 20 billion in the collection of states and municipalities, since the revenue from the tax is shared between the entities .

According to government officials, there are scenarios with a 10% to 50% cut in IPI rates.

If the proposal is implemented, only cigarettes and beverages would continue to be taxed higher. White goods or automobiles would have their load reduced.

The studies are carried out in the midst of discussions about the reduction of taxes on fuel. as showed the leafafter considering a wide cut, the government should focus on a reduction of PIS/Cofins on diesel.

The Planalto Palace and the economic team, however, want the governors to also make a contribution to the reduction. For this, the Jair Bolsonaro government (PL) wants the approval of the complementary bill 11/2020.

The text, approved in the Chamber in October and stopped in the Senate since then, would change the collection of ICMS and establish limits for taxation. States, however, resist changes to the tax.

At the same time, governors hint at the possibility of using the cash available in cash to grant readjustments to servers.

The federal government rejects the use of the record collection of taxes with the expansion of expenses and defends that the revenues are returned to the population in the form of a lower tax burden. Therefore, if the states are inert in relation to ICMS, the strategy is to drain resources in another way.

As it is a regulatory tax, the IPI can have its rates changed by means of a presidential decree, without the need for approval from the National Congress — where governors exert pressure.

The strategy began to be discussed amid an attempt by the economic team to avoid a PEC (proposed amendment to the Constitution) to change fuel taxation, as has been defended at Palácio do Planalto.

The PEC would be used to allow the reduction of rates without the need for compensation, removing requirements from the LRF (Law of Fiscal Responsibility).

The team of Minister Paulo Guedes (Economy) has already convinced Bolsonaro to limit the scope of the exemption to diesel only, which reduces the impact of the measure to up to R$ 17 billion. A tax cut that also covered gasoline, ethanol and electricity could cost more than R$70 billion.

Now, the economic area wants the removal of the LRF (which is a complementary law) to take place through a bill of the same nature – which would need to be sanctioned by Bolsonaro after approval in the Legislature.

The fear of Guedes’ team is that, in the case of a PEC, Congress will end up expanding the tax cuts. Constitutional changes are enacted directly by lawmakers, without being subject to a presidential veto — although members’ confidence in the government’s parliamentary base mitigates some of the concern.

In Planalto, there is a preference for the PEC because there are doubts whether the president could make a tax cut of this magnitude in 2022.

The fear is that the measure will be interpreted as a benefit, something prohibited by the electoral law. The enactment of the text by Congress would remove Bolsonaro’s fingerprints on the measure.

The Economy Minister also convinced the president to rule out the creation of a price stabilization fund, which could cost up to R$120 billion and was defended by ministers Rogério Marinho (Regional Development), Bento Albuquerque (Mines and Energy) and Onyx Lorenzoni. (Work and Pensions).

The fund would function, in the economic area’s view, as a real interference in prices and, in addition to the expressive cost, it would have high chances of being a failure and would only throw money away in the face of rising prices in the international market.

After discussions that brought together different ministers, the idea of ​​the fund was discarded by the government. However, the feasibility of a localized tax cut on diesel is still being analysed – an idea that could go ahead even with the generalized cut of the IPI under study.

Fuel is a concern for the government and its allies, who fear the impact of prices in this year’s elections.

The Speaker of the Chamber, Arthur Lira (PP-AL), has been charging the Senate to vote on PLP 11/2020, which changes the rules for charging ICMS.

The text establishes that the rates defined by the states for fuels will be specific, per unit of measure adopted. According to the text, the percentages would be defined annually by the states and would be in force for 12 months.

The project prevents rates from exceeding, in reais per liter, the average value of final consumer prices practiced over the two previous years, plus the rate in effect at the end of the previous year. For the first year of validity, the values ​​cannot be above the average observed in 2019 and 2020.

“The Chamber dealt with the bill that mitigated the effects of fuel increases. Sent to the Senate, it became an ugly duckling and Geni from the market crowd”, wrote the president of the Chamber of Deputies on a social network last month.

After the criticism, the president of the Senate, Rodrigo Pacheco (PSD-MG), said that he intends to put to a vote a proposal to hold the rise in fuel prices in the return of the parliamentary recess, this month.