Brazil states foresee US$6 billion loss from ICMS tax change on fuels designed to mitigate price rise

RIO DE JANEIRO, BRAZIL – Brazilian states recalculated in R$32 (US$6) billion the size of their collective losses under the bill that changes the way ICMS (a Value Added Tax on the transfer of goods) is charged to mitigate the rise in fuel prices. The bill was approved by the Chamber of Deputies and is now being processed in the Senate.

In a note, the National Committee of State Finance Secretaries (Comsefaz) says that this loss will occur for both states and municipalities, as the latter receive a share of the state ICMS tax revenues. The previous calculation foresaw a reduction in tax collection of R$24 billion.

After failing to stop the bill in the House of Representatives, the states are promoting a joint effort to convince the senators to reject the plan.

For the states, besides threatening the financing of mandatory expenses and compromising the fiscal balance of the subnational entities, the change in the ICMS will not solve the problem of high fuel prices. They argue that the problem will only be solved with the revision of the International Parity Policy adopted by Petrobras since 2016.

“No action is taken on the cause of the rise in prices, and a diversionist fiction is created that only attempts to displace from the federal government its full responsibility on the issue,” says the note.

The states have classified the project as an “experiment in misconception” that is too costly for the lives of citizens in situations of greater economic vulnerability, who would be the most affected by the cut in public service resources.

Comsefaz also argues that the bill is unconstitutional. They argue that Congress has specific competence in matters of ICMS to create a single-phase regime for the taxation of fuels. But, even in this case, the Constitution reserves to the National Council of Treasury Policy (Confaz) the ability to decide on ICMS rates.

The president of the Chamber of Deputies, Arthur Lira (PP-AL), defended the bill that changes the ICMS collection on fuels, approved by the chamber last week. According to him, no state is having collection difficulties. “States and municipalities are full of resources,” he said in an interview with Veja magazine.

Although the bill changes the collection, currently a percentage on the average sale price, to a fixed value per liter, Lira said the Chamber did not touch the autonomy of the states, which will be able to define the ICMS rates for each fuel. The text is now in the Senate but is being resisted by the states and could be changed.

When talking about inflation, Lira minimized the fact that market forecasts for inflation this year are close to 9%. In 12 months, the IPCA accumulates a high of 10.25%. “Brazil’s 9% inflation, with all the difficulties, is not a disparity. The United States is at 5%”, he said.