G1 highlights Eduardo Maneira's assessment of the impact of ICMS on fuel prices

Report from the portal G1 explains what could change in the collection of ICMS on fuels, if the project, already approved by the Chamber, which changes the basis for calculating taxation on the product, passes. The report highlighted Dr. Eduardo Maneira's comment on the topic.

Understand what can change in the state ICMS charge on fuels

Chamber approved project that changes calculation basis from percentage of price to fixed value to be defined by states; The objective is to reduce costs for the consumer. Text goes to the Senate.

By Alexandro Martello, g1— Brasília

14/10/2021

The Chamber of Deputies approved a project that changes the calculation of fuel taxation to try to lower the price charged to the end consumer. To be valid, the text still needs to go through the Senado.

The proposal under discussion only covers the collection of the Tax on Circulation of Goods and Products (ICMS), a state tax. The federal government assesses that this taxation burdens the end consumer with “tax rates excessive.”

According to a survey by the Higher Institute of Administration and Economics of Fundação Getúlio Vargas (ISAE/FGV), fuels, electricity and meat are among the items that more have weighed on Brazilians' pockets and on the country's official inflation.

How it currently works

Currently, ICMS is charged as a percentage of the final price of the product, and the rates vary according to each state. In the case of gasoline, for example, the tax varies from 25% to 34% of the price. For diesel, the charge ranges from 12% to 25%.

In the current system, in a “tax substitution” format, the ICMS is collected at the initial stage of the production chain, that is, in refineries, but the value encompasses the entire sector chain – covering distributors and gas stations.

As the tax is collected in advance at the refineries, it is necessary to estimate the final price to the consumer in each state to apply the ICMS rate. In this process, each entity of the federation defines the so-called “weighted average price for the final consumer”, made every 15 days.

In this way, taxes are also part of the calculation basis for the future price of fuel – on which taxation will apply.

In addition, in a scenario of rising oil prices and the dollar (factors that affect the price of production, defined by Petrobras and importers), states collect more resources even without increasing the ICMS rate.

“The reality is that the majority of states have not even changed, in recent years, the ICMS rate levied on fuels. It turns out that the increase in the sales price by Petrobras has expanded the calculation base on which the ICMS rate is levied and, as a result, also caused an increase in states' revenue from ICMS-Combustíveis”, reported the Brazilian Federation of Tax Inspectors Associations State (Febrafite).

New proposed template

The project being discussed by the National Congress establishes that ICMS will no longer be charged as a percentage of the final price of the product. The proposal is for the tax to become a fixed price, in reais, per liter of fuel.

Thus, if consumer prices rise due to production costs (higher dollar and oil prices), taxation will not increase, as is currently the case, as the rate charged will continue to be fixed in reais (R$ per liter).

Under the proposal, states would have the autonomy to define, once a year, their own ICMS rates (in R$ per liter), as long as they do not exceed the value of the average prices “usually charged in the market” in the last two years. And the value of this tax must be in force for the subsequent 12 months.

If the text becomes law, the first adjustment made by the states must consider the average price charged between January 2019 and December 2020.

When considering a broader period (last two years) to establish a ceiling for the rate, the proposal tends to reduce the taxes charged to the final consumer – as oil has risen more intensely in recent months. Furthermore, the new rate could not be changed for one year.

According to the president of the Chamber, Arthur Lira (PP-AL) – supporter of the text –, the change in the ICMS taxation format will allow reduction in the price of gasoline by 8%; of ethanol by 7%; and diesel by 3.7%.

States fear loss of revenue

State government representatives point out, however, that the new rule will cause damage to local revenue.

In a note released this Wednesday (13), the National Committee of State Finance Secretaries (Comsefaz) states that, if approved, the project should reduce state finances by R$24 billion – which, consequently, means a loss of R$6 billion for municipalities.

According to the states, the ICMS on fuels raised around R$90 billion in 2019, representing around 18% of the total R$509 billion in tax collection that year. The states remember that 25% of the ICMS is passed on to the municipalities. In some states, such as Piauí, says Febrafite, the ICMS on fuels represents more than 30% of the tax collection.

“It is evident, therefore, that any proposal to significantly change the ICMS charge on fuels is of great relevance, especially to state public finances. It is worth remembering that many states are in serious fiscal difficulties, some are even negotiating entry into the Fiscal Recovery Regime (RRF), with the Union”, he added.

Expert opinion

In a public hearing on the change in the ICMS charging format on fuels, at the Finance and Taxation Committee (CFT) of the Chamber, in May this year, sector experts assessed that the proposal, if implemented, would simplify taxation and avoid the accumulation of credits by companies in the sector, in addition to reducing lawsuits, but would not prevent the rise in fuel prices.

On the occasion, Carla Borges Ferreira, researcher at the Institute for Strategic Studies of Petroleum, Natural Gas and Biofuels (Ineep), noted that most of the price of fuel in Brazil refers to the amount charged by Petrobras, which varies according to the international price of oil and the variation in the dollar.

“We often treat taxes and duties as the villain behind rising prices, but we fail to look at the structure as a whole”, he stated. She assessed that a “stabilization fund” could be created, with public resources, to prevent international variations in oil from being completely passed on to prices.

Eduardo Maneira, professor at the National Faculty of Law at the Federal University of Rio de Janeiro (FND/UFRJ), assessed, in May this year, that the ICMS is not a fundamental factor in defining, in the current scenario, the price of fuel.

“It will not be ‘ad rem’ [a fixed rate as the federal government wants] or ‘ad valorem’ [percentage on the final price] that will establish stability in fuel prices. There are several factors, exchange rate variation, production factors, incidence of other taxes”, he said, at that time.

Valéria Lima, executive director of the Brazilian Oil and Gas Institute (IBP) said she does not believe that the ICMS is causing the increase in fuel prices in the country, but also assessed that the government's proposal to establish a rate in reais would generate greater tax simplification.

“By having an ‘ad rem’ rate [in reais], there would be a volatility buffer, as a portion of prices would not vary. It would facilitate inspection, transfer between states, and there would no longer be an economic incentive for tax evasion”, declared Lima, in May of this year.

https://g1.globo.com/economia/noticia/2021/10/14/entenda-o-que-pode-mudar-na-cobranca-do-icms-estadual-sobre-combustiveis.ghtml