Brazil: São Paulo State Government to reduce VAT on gasoline

RIO DE JANEIRO, BRAZIL – The governor of São Paulo, Rodrigo Garcia (PSDB), announced on Monday, June 27, that the state will immediately reduce the VAT tax rates (ICMS) on gasoline from 25% to 18%, which may cause a reduction in the price at the pumps of at least R$0.40 (US$0.08) per liter, and may reach R$0.48. The average price of the fuel should stay below R$6.50.

The reduction is due to Complementary Law 194, sanctioned by President Jair Bolsonaro (Liberal Party – PL) last week, limiting fuel tax rates.

The president vetoed provisions in the text that guaranteed financial compensation by the federal government to the states to ensure investments in health and education.

Garcia says that only the tax waiver related to gasoline São Paulo should lose at least R$4.4 billion annually, reducing state government investments in education and health.

“We have a budget of 30% for education, 9.57% for state universities (USP, Unesp, and Unicamp, which recently increased salaries by 20%). When the ICMS is reduced, we lose R$600 million in Health and R$1.2 billion in education. There will be less money for these strategic areas,” said the governor.

A pre-candidate of the PSDB for reelection in São Paulo, Garcia said that the São Paulo State Procon (consumer protection body) would put inspectors on the streets to disclose the average price of gasoline at service stations so that consumers could check in which stations the tax reduction was fully passed on.

According to the Treasury Department, the reduction in the final price may reach R$0.48 per liter of gasoline.

Procon, however, will not be able to fine or notify establishments that eventually do not pass on the price. “We live in a capitalist, liberal country, without price control,” said Garcia.

The governor of São Paulo also said that he remains in favor of the Union’s compensation measures to the states, provided in the law and vetoed by Bolsonaro. Congress can still overturn the vetoes.

“We are in the middle of the fiscal year, with a record level of (public) investment. Naturally, we will have to review our revenues and, consequently, our expenses. This will compromise investments, and we will work hard to use the fiscal surplus we have to avoid a reduction in this second half,” said Garcia.

If there is no compensation for revenue losses, the state investments in health and education will be significantly reduced already in 2023.

The VAT (ICMS) reduction on diesel, fuel used in large vehicles such as pickups, trucks, and buses, is not yet defined in São Paulo and will depend on a meeting of the National Council of Finance Policy (Confaz) scheduled for this Tuesday.

The ICMS tax rate on diesel used in São Paulo is 13.3%, already below the 18% ceiling stipulated by the law sanctioned by Bolsonaro. The São Paulo state government has frozen the tax at R$0.66 per liter until November 2021. According to the Finance Department, if there had been no freeze, the tax would now be above R$1 per liter of fuel.

With information from Exame