Governors present letter to the Union with tax reform and ICMS

Governors of the South and Southeast regions pledged to work together with the federal government and municipalities in approving a tax reform that increases economic efficiency and simplifies taxpayer obligations. And they asked the Union to start a process of Compensation of ICMS collection losses imposed last year by legislation that lowered tax rates on items such as fuel, energy, natural gas, communications and transportation.

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These were some of the main items established by the Letter from Rio de Janeiroa document prepared during the 7th meeting of the South and Southeast Integration Consortium (Cosud), which took place at the Getúlio Vargas Foundation (FGV), in Rio de Janeiro. The letter, signed by the governors of the states of both regions and presented this Saturday (4) to the federal government, asks, in addition to issues related to tax reform and ICMS, the review of public policies that directly impact the states. It also includes guidelines such as public debt with the Union, the strengthening of regulatory agencies and greater integration between state and federal governments.

With regard to tax reform, the governors intend to work on the approval of a broader agenda, which modernizes the system and has as its main focus the promotion of social justice and the promotion of local development. The states also ask that the Union no longer establish measures that represent an impact on state public accounts unilaterally, without listening to local governments.

Another request is that the federal government initiate a process of compensation for losses in collection with ICMS imposed by Complementary Laws nº 192 and 194, respectively, of March 11, 2022 and June 23, 2022, whose effects, resulted in a revenue drop of more than R$45 billion by December 2022. According to the governors, the duty to compensate is provided for in the law itself.

Public debt negotiation and other demands

Although issues related to tax reform and ICMS are highlighted, the document also requests a review of the way debts are collected from federal entities. Today, the South and Southeast correspond to 93% of the public debt with the Union, representing around R$ 630 billion. According to the letter, it is unsustainable for states to pay this debt and still invest in infrastructure, modernization and maintenance of essential public services.

The managers also ask that the National Congress permanently extend the Untying of State Revenues (DRE), a measure that allows the funds raised to be applied in any area, without the need for mandatory allocation to specific sectors. The idea is that the extension starts at 40% in 2024 and is gradually reduced, until it reaches 30% in 2034.

Another request is the five-year extension and review of the Special Regime for Payment of Precatories introduced by EC 99/2017. The current deadline ends on December 31, 2029 and would be extended to December 31, 2034. In the letter, the governments also expressed the importance of strengthening public service regulatory agencies. According to the document, legal certainty is a basic premise for Brazil to continue to receive long-term investments, necessary for the development of infrastructure, mainly in areas such as sanitation.

Alignment between governments

The Rio de Janeiro Charter is signed by the governments of Rio Grande do Sul, Santa Catarina, Paraná, São Paulo, Rio de Janeiro, Minas Gerais and Espírito Santo. “Discussions such as tax reform, the review of state public debts with the Union and greater alignment between the federal government and the states for the creation of laws that directly impact state management are essential to ensure the smooth functioning of the public machine” , points out the governor of Paraná, Ratinho Junior (PSD).

In addition to the current discussions on tax reform and ICMS losses, for Claudio Castro, governor of Rio de Janeiro, the letter summarizes the work carried out by government officials during the meeting and should be adopted as a national initiative. “We believe in this collaborative country model. What we are doing in our regions is what we believe should be done in Brazil”, he says.