Law that relieves diesel opens a loophole for companies to obtain credit for unpaid tax

The law that exempts federal taxes on diesel, biodiesel, cooking gas and aviation kerosene contains a risk to the public coffers not yet calculated by the government and that should cause the loss of revenue to exceed the R$ 16.6 billion disclosed by the Ministry of Economy.

The wording of Complementary Law 192, sanctioned without vetoes by President Jair Bolsonaro (PL), grants companies that buy fuel for their own use tax credits to deduct amounts from other taxes due to the Federal Revenue, even if they do not pay any PIS and Cofins. in these operations due to the exemption.

In other words, the text will not only zero PIS and Cofins on fuels, but will also generate a tax credit for those who buy the products. Therefore, the tax impact must be greater than advertised.

The measure will benefit a wide range of companies, such as transport companies, bus companies and aviation companies. A part of these segments make up the president’s support base and also have the sympathy of parliamentarians in the National Congress.

According to what was released by the Ministry of Economy until the beginning of the week, the cut in PIS and Cofins takes R$ 14.9 billion from public coffers this year. There is also an impact of BRL 1.66 billion that will fall on the 2023 accounts, when the taxes actually generated in December this year would be collected.

With this, the total waiver of the measure is estimated at R$ 16.6 billion – but the value only considers the reduction to zero of the rates, without taking into account the use of credits that will be generated to buyers.

The interpretation of the technicians currently is that the mechanism created by the law does not make sense, since the final purchaser of the products could not be entitled to these credits – especially if the taxes are zero.

The mechanism, they argue, should be restricted to producing and selling companies that are part of the fuel chain.

In the case of producers and resellers, the PIS and Cofins legislation authorizes the granting of credits even with zero rates (due to a 2004 law). But for end buyers, the benefit is new.

The law that exempted PIS/Cofins on the four fuels was sanctioned on the night of March 11 by Bolsonaro, less than 24 hours after the conclusion of the vote on the text in the National Congress. After approval in the Senate, the proposal was jettisoned in the Chamber of Deputies.

The president was in a hurry to sign the law into law because, the day before, Petrobras had announced a mega-increase in the prices of gasoline, diesel and cooking gas. Cutting taxes would be a way to soften the impact of the bombs and mitigate the political consequences in the year in which Bolsonaro intends to seek reelection.

On the Friday that the law was sanctioned, technicians from the Economy and Palácio do Planalto rushed to produce the technical notes and documents necessary for the sanction. Bolsonaro could have vetoed the law in its entirety or some of its parts, but the decision was for full sanction.

The construction of the article that opened the tax credits loophole, however, made a partial veto difficult. The provision included in the same sentence the exemption of PIS/Cofins and the benefit to final buyers, making it impossible to separate the effects.

The passage seen as problematic by the government was incorporated by the rapporteur, Senator Jean Paul Prates (PT-RN), for the first time in the opinion given on March 9, the eve of the vote in the Senate plenary.

Through his advice, the rapporteur highlighted that the text is the result of negotiation with Congress and that it was the government itself that asked for the inclusion of the exemption in the proposal.

“The Ministry of Economy had several opportunities to identify problems in the text, and several other passages were adapted in favor of the agreement. The fact that the passage in question was not vetoed indicates that the risk in question was not considered relevant by the Executive Branch itself” , said Prates.

When questioned, both the Ministry of Economy and the Federal Revenue did not explain whether the problem was identified before the sanction and whether there was a recommendation to veto the article to the Presidency of the Republic.

Bianca Xavier, professor of Tax Law at FGV (Fundação Getulio Vargas), says that the law will generate a double impact for the public coffers by zeroing taxes and also creating credits.

“By an analogy, it is as if the government were zeroing the Income Tax and allowing people to generate credits for medical expenses”, he says.

According to her, the stretch will generate a significant impact due to the breadth of its application. In practice, the benefit can be used by companies that do not operate in the fuel sector – but that use the product in their activities.

The credit cannot be applied to individuals, as only companies pay PIS and Cofins. Nor can it be used by smaller companies, which operate under the simplified systems of presumed profit or Simples (which do not generate credits). With that, it would only be used by larger companies, which operate for the so-called real profit.

“​​It is a relevant change. For any real profit company, this will generate an interesting credit”, he says.

Ministry of Economy discusses an interim measure to eliminate breach

The breach sparked an alert within the Economy, which is discussing the issue of an MP (Provisional Measure), with immediate effect, to correct the problem.

The economic team intends to change the text to define a more restricted scope of the credits, saying that they are applied “to legal entities that produce or resellers”. In this way, the new wording would follow what is already established by a previous law (11,033, of 2004).

In theory, a complementary law cannot be modified by MP – but the interpretation is that the instrument can be used in this case because the PIS/Cofins rates and credits have the status of ordinary law.

In addition to the impact on the public coffers, not yet calculated by the technicians, the assessment is that the current wording generates a risk of disputes between the Union and taxpayers and even defeats by the government in court.

The problem detected is in the section that determines that, even with PIS and Cofins set to zero for these fuels, “the legal entities in the chain, including the final purchaser, are guaranteed to maintain the linked credits”.

Members of the portfolio consider that the wording can make taxpayers demand the advantage – which can lead to a series of fights between the Federal Revenue and tax payers and give rise to “creative” theses in Justice.

“Maintaining the current wording of article 9 may bring legal uncertainty to its application and lead to the judicialization of the credit issue, based on the interpretation that the final purchaser of the fuel, even with the rates of contribution to PIS/Pasep and Cofins reduced to zero, I could take credit for this acquisition”, says an excerpt from a technical note prepared by the Federal Revenue.

“This hypothesis makes no sense, as purchases of products sold with zero contribution rates do not give rise to the right to credits”, the document states.

Understand the impacts

• What is the revenue loss calculated by the Ministry of Economy with the enacted law?

The text will drain BRL 14.9 billion from the Union this year. There is also an impact of BRL 1.66 billion on the 2023 accounts, when taxes generated in December would be collected. As a result, the total waiver was estimated at BRL 16.6 billion

• Why should the impact grow?

Data only consider the reduction to zero of PIS and Cofins rates, without taking into account the use of credits that will be generated to fuel buyers – something that was inserted in the text on the eve of the vote in Congress

• What does the law allow in relation to credits?

It grants companies that buy fuel for their own use tax credits to deduct amounts from other taxes due to the Federal Revenue, even if they do not pay any penny of PIS and Cofins in these operations due to the exemption. In the view of the technicians, this mechanism should be restricted to fuel producers and dealers – not final consumers.

• Who should the credits benefit?

A wide range of large companies that use fuels in their operational activities, from transport companies, and bus or aviation companies to retailers and beverage manufacturers, for example.