Brazilian Senate approves bill to cap state VAT on fuel to make driving affordable

RIO DE JANEIRO, BRAZIL – On June 13, the Brazilian Senate approved the bill, which limits state-level VAT (ICMS) on fuels, natural gas, electric energy, communications, and public transportation.

According to the proposal, these products would be classified as essential and indispensable, setting the ICMS rate at a maximum level of 17%, lower than that currently practiced by the states.

The text also provides for the Union to compensate the states for their revenue losses.

The bill’s objective is to cause a reduction in the value of fuels at the pump, relieving the consumer’s expenses with gasoline, which exceeds R$7 (US$1.37) a liter in Brazil, and diesel, also benefiting truck drivers and transporters.

The PLP also seeks to reduce the value of cooking gas and electricity bills.

There were 65 votes in favor and 12 against. The bill returns to the House of Representatives for a new analysis after the amendments inserted in the text.

For the project’s rapporteur in the Senate, Fernando Bezerra (MDB-PE), the PLP is “a crucial step to bring down inflation,” in addition to holding down prices on electricity bills and gas stations.

He also affirmed that Congress “makes history” by including these sectors among those considered essential.

“I participated in the 1988 Constituent Assembly, where we said that the essentiality of the products had to be defined by complementary law. And more than 30 years have passed, and Congress, at no time, defined the essentiality of the products. Therefore, this is an important step; we are making history,” said the senator.

Bezerra read his report in plenary last week, and today he focused on the amendments received for the project. There were 77 in total, and Bezerra accepted four entirely and nine partially.

AMENDMENTS

One of the accepted amendments restores the revenue losses from the Fund for Maintenance of Basic Education (Fundeb) and actions of health services.

Both sectors have revenues linked to the collection of ICMS. The rapporteur included a section that provides for the maintenance of the links to health and basic education but in proportion to the deduction of the debt contracts of the states with the Union.

Bezerra also included a provision in the text to provide legal security for state managers. Thus, they will be able to reduce ICMS collection without violating the Fiscal Responsibility Law (LRF) and the Budget Guidelines Law (LDO).

According to the rules, a federal entity cannot give up revenue without indicating a new collection source to compensate.

After the approval of the basic text, the senators approved a highlight – the others were rejected. The highlight approved provides that if states and municipalities lose resources due to the law, the Union will compensate them so that the current levels of Fundeb are maintained.

SENATORS

The PLP was not unanimous in the plenary. Some senators were against the project. For Zenaide Maia (Pros-RN), the project does not attack the main cause of the increase in fuel prices, which is the current price policy of Petrobras, linked to the international price of oil barrels and the value of the dollar.

“This bill has nothing to do with it. And also, without the guarantee that there will be a reduction in prices at the fuel pump, we know that it depends on the dollar and the certainty that Petrobras, as soon as this is approved here, will recompose the prices because it has been more than 20 days since it last gave an increase”.

Carlos Portinho (PL-RJ), the new government leader in the Senate, defended the project and asked for the states’ participation in reducing the fuel price for the population.

According to him, the government has contributed by giving up federal taxes on fuel to reduce the impact of inflation explained by the war in Ukraine, among other international variables.

“We have to cut taxes, just as several nations in the world, at this time of international emergency, are doing. That’s what we have for today,” he said.

“Now it is time for the governments: it is time for the Federal Government, which puts it on the table, and it is time for this sacrifice by the state governments.”

REPORT

Last week, when presenting the report to the press, Bezerra said that, if approved, the PLP could lower the price of gasoline by R$1.65 and the price of diesel by R$0.76.

However, he highlighted that the prices could only “not go up much more”, depending on the international scenario, which influences the price of a barrel of oil and the appreciation of the dollar against the real.

“We are not fixing prices. There is a war in Ukraine; Russia is responsible for 25% of the diesel production in the world, and prices are under pressure. There may be a rise in prices. But, even if there is, this will help to keep prices from rising much higher than they would otherwise rise,” he said on occasion.

There is already a project approved in the Senate in March that intends to reduce the value of fuels. Bill 1.472/2021 proposes to change how fuel prices are calculated, besides creating a Stabilization Account, to guarantee predictability in prices for the consumer.

The project, considered one of the Senate’s priorities earlier this year, is currently stalled in the House of Representatives, with no vote foreseen.

With information from Agência Brasil