Donovan Lessa comments in the newspaper O GLOBO on the proposal to standardize the ICMS rate

Newspaper report O GLOBO dealt with a proposal from the president of the Chamber of Deputies, Arthur Lira, to standardize the ICMS rate for energy and fuels at 17%. Dr. Donovan Mazza Lessa, partner at Maneira Advogados, was interviewed to comment on the matter.

Lira articulates ICMS rule that takes up to R$100 billion from states

With the approval of Planalto, president of the Chamber puts together a measure that could represent a blow to the states' cash flow: the standardization of ICMS rates at 17% for energy and fuels

By Fernanda Trisotto, Camila Zarur, Alice Cravo, Jussara Soares, Geralda Doca, Raphaela Ribas and João Sorima Neto — Brasília, Rio and São Paulo

20/05/2022

Photo: Cristiano Mariz

Arthur Lira (PP-AL), president of the Chamber of Deputies, articulates, with the support of Palácio do Planalto, a measure that could represent a blow to the states' cash flow: the standardization of ICMS rates at 17% for energy and fuels.

The objective is to curb inflation, which is harming Jair Bolsonaro's popularity in an election year. As this is the basis for local government revenue — as it is difficult to evade — the rates can exceed 30% for these products in some states. If the proposal moves forward, the states could see a reduction of R$70 billion to R$100 billion per year, according to calculations by some local governments, on a reserved basis.

Lira announced that the project will be voted on on Tuesday. The proposal, by deputy Danilo Forte (União-CE), now considers electricity, fuel, telecommunications and water services as essential, which limits the tax rate that can be applied.

Parliamentarians approved an urgent request to process the text last Wednesday. Government sources consider the withdrawal of telecommunications services from the project to be certain.

— Then we will have real clarity for those who want to reduce the price of fuel, energy, transport, telecommunications in Brazil — said the president of the Chamber.

Although Lira is heading the project, it has the support of Planalto, which sees the initiative as a great electoral opportunity for Bolsonaro. Officially, however, the parliamentarian took the initiative:

“The announcement by the President of the Chamber, Arthur Lira, to guide the project that classifies fuels, electricity, telecommunications and transport as essential goods and services for voting in plenary is an important step towards the social justice that we seek for Brazilians. The support of Congress for this matter is important, the processing of which is being very well handled by President Arthur Lira”, wrote Ciro Nogueira, Chief Minister of the Civil House, on a social network.

Analyst sees drop in account

Lira met, yesterday, with Rodrigo Pacheco (PSD-MG), president of the Senate, to discuss the matter. Pacheco was against the proposal to standardize the ICMS at 17% for fuels and energy. He believes that this harms the autonomy of the states, which will lose the chance to establish their tax policies.

Officially, however, he says he will take the matter up for debate: “I committed to bringing to leaders the topic that can contribute to reducing the impact of state taxes on fuel prices,” Pacheco wrote on a social network.

The reduction in the ICMS rate on fuel and energy could have a heavy impact on states' accounts. In 2021 alone, the two items accounted for 27.4% of states' revenue from the tax, which represents R$178.9 billion of the R$652.4 billion collected.

The effect could be even greater if a reduction in the rates for public transport and telecommunications is considered, as stated in Congressman Danilo Forte's proposal.

The change, which alters the Tax Code, is seen as a way of circumventing the autonomy of states to set tax rates and promises to be another factor of friction between governors and the Executive.

Yesterday, the government and states met at the National Council for Financial Policy (Confaz) to discuss changes to the ICMS on diesel, after Bolsonaro's victory in the STF, in a decision that forces local governments to adopt a single rate. There was no progress in the meeting.

For tax lawyer Donovan Mazza Lessa, partner at Maneira Advogados, the 17% limit on ICMS on fuel and electricity should be discussed within the scope of a broader tax reform:

— States calibrate tax rates according to the resources they need. Energy, telecommunications and fuel are the main sources of ICMS revenue. A reduction will certainly have a negative impact on cash. Having the ICMS reduced by imposition could be a reversal of powers, as it is a state tax.

He remembers, however, that the Constitution provides that the ICMS has a higher rate for superfluous items and a lower one for essential items.https://5fbe3b7cc6f1a0558696c859395e7563.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html

Risk of breaking states

According to Wagner Ferreira, institutional and legal director of the Brazilian Association of Electricity Distributors (Abradee), the adoption of the tax limit would result in a 10% reduction in the electricity bill.

— Energy is very essential, there should be lower taxes. And the change would have a positive rebound effect on the chain — he said, highlighting that Mato Grosso, Amapá and Roraima already have ICMS rates of 17% on energy.

Afonso Henriques, former director of the National Electric Energy Agency, considers, however, that the change will also affect municipalities:

— It's a structural change. A large part of the ICMS (50%) goes to municipalities. How will they live? Many local governments will likely break the Fiscal Responsibility Law's spending limit.

Professor at the Brazilian Institute of Tax Law (IBDT), lawyer Fernando Zilveti states that limiting the ICMS on energy and fuels to 17% could break some states:

— In some states, energy and fuel revenue represents 80% of the ICMS total. Many states do not guarantee this reduction because they are committed to payroll, in addition to mandatory health and education expenses. They may even break. This is a populist measure to try to re-elect the president.

https://oglobo.globo.com/economia/noticia/2022/05/lira-articula-regra-de-icms-que-tira-ate-r-100-bilhoes-dos-estados.ghtml