RIO DE JANEIRO, BRAZIL – Despite a fiscal imbalance scenario, revenue foregone by states because of tax incentives to business increased 12.2 percent in 2019 over 2018. Governors ceased to collect R$91.7 billion (US$18.3 billion) as a result.
According to a National Treasury survey, 65.1 percent of the ICMS (tax on goods and services) waivers granted by states in 2019 were established for an indefinite period. In other words, there is no end in sight for the waivers.
The debate to cut waivers grew as a response from states to the financial crisis posed by the Covid-19 pandemic in 2021. The states of Rio Grande do Sul and São Paulo have already announced proposals to reduce tax incentives granted to businesses next year.
The states ceased to collect an average of 16.8 percent of ICMS revenue, their principal source of tax revenue. The highest waiver rate is in Amazonas, at 49 percent, because of the Manaus Free Zone.
Following Amazonas come Goiás (32 percent), Mato Grosso (29 percent), Paraíba (23 percent), and Santa Catarina (21 percent), leading the ranking of states with the most tax waivers. On the opposite end is Pará with a waiver rate of only four percent. Rio de Janeiro, the state with the worst situation in the country, records a 19 percent waiver rate.
The data was released on Monday, August 24th, in the 2019 Finance Bulletin of Subnational Corporations.
The revenue waiver consists in the amount of money that the state tax authorities cease to collect when granting differentiated benefits to certain taxpayers in relation to what is provided for by law.
These waivers may be in the form of amnesty, write-off, grant, presumed credit, a grant of exemption on a non-general basis, change in tax rate, or change in the tax base that implies a reduction in payable tax.
To adopt waivers, the Fiscal Responsibility Law (LRF) requires an assessment of the financial impact and the adoption of mitigating measures.
By law, any ICMS tax benefits granted by a state must be unanimously approved by the National Council of Finance Policy (CONFAZ), a collegiate body having members of all state treasury departments. However, it was common for states to unilaterally grant these benefits, thus fueling the so-called “fiscal war” between states.
In 2017, Complementary Law 160 was passed in an attempt to address this situation. By law, all benefits irregularly granted up to that moment could be confirmed, provided some conditions were observed, such as providing transparency on such incentives. The law authorized the extension of certain benefits for up to 15 years.
Despite the requirement for transparency, the states of Sergipe, Piauí, Tocantins, Amapá, Mato Grosso do Sul, Maranhão and Rio Grande do Norte failed to provide the Treasury with data on their waivers.
In addition to most of the existing ICMS waivers having no term limit, almost half of them are granted under the presumed credit modality.
Below are the waiver rates of the States that submitted the required data:
- Amazonas – 49%
- Goiás – 32%
- Mato Grosso – 29%
- Paraíba – 23%
- Santa Catarina – 21%
- Paraná – 20%
- Rio de Janeiro – 19%
- Alagoas – 17%
- Federal District- 17%
- Ceará – 16%
- Pernambuco – 13%
- São Paulo – 13%
- Rondônia – 12%
- Minas Gerais – 11%
- Espírito Santo – 10%
- Acre – 9%
- Rio Grande do Sul – 8%
- Bahia – 8%
- Roraima – 7%
- Amapá – 4%
- Average: 16.8%
Source: Estadão Conteúdo