ICMS: Haddad announces agreement with states to replace losses – 03/10/2023 – Market

The Minister of Finance, Fernando Haddad (PT), announced this Friday (10) an agreement of R$ 26.9 billion between the Union and states to replace the losses imposed by the ICMS (Tax on Circulation of Goods and Services) cut. on fuels, energy, transport and communications.

“The Treasury team [Nacional] and the 27 teams from the states came up with a number. When it’s an agreement, it’s never satisfactory for anyone. It is an account that you do based on parameters and it is technical”, said the minister, who will still take the proposal to President Luiz Inácio Lula da Silva (PT) and the other Powers.

According to Haddad, the agreement does not affect the government’s projections “neither for this year nor for the future, in relation to what [pacote fiscal] which was announced in January”.

Rogério Ceron, secretary of the National Treasury, and Rafael Fonteles (PT), governor of Piauí and president of the National Forum of Governors, also participated in the announcement.

Of the total amount agreed upon, approximately R$9 billion have already been compensated through injunctions granted by the STF (Federal Supreme Court) to debtor states of the Union within the scope of the working group created by the Court. The rest will be deducted from the installments of the debt with the Union or paid by the Union (for States with small debts with the Union or even without debt) until 2026.

Measures related to the reduction of ICMS were approved in 2022 under the government of Jair Bolsonaro (PL), at a time of high fuel prices, high inflation and political wear and tear while the former president was seeking re-election.

In March last year, Bolsonaro sanctioned a law that standardized the ICMS rate on gasoline, diesel and ethanol. State tax was levied at a fixed amount per liter (“ad rem”) instead of a percentage. The measure had a billionaire impact on the states’ cash flow.

Two months later, the president of the Chamber of Deputies, Arthur Lira (PP-AL), articulated the approval of a proposal that limited the ICMS tax on fuel, electricity, transport and telecommunications to 17%. These goods came to be considered essential.

The project was the subject of intense dispute between states, which warned of the loss of revenue, and the federal government, which used the high moment in revenue to claim that state coffers were full and there was room for tax cuts.

Despite the resistance of the governors, who pointed out problems in closing the accounts with the drop in revenue, the proposal was approved with relative ease in both Houses of the National Congress, being sanctioned in June by the then president.

The text also provided for compensation to states that had losses greater than 5% in tax collection, but the wording of the rule left room for different interpretations. The way in which this repair was calculated was the subject of disagreements.

The payment of compensation by the Union to the states became one of the main impasses in the beginning of Luiz Inácio Lula da Silva’s (PT) government. In December, the STF (Federal Supreme Court), which mediated the conflict after being called upon by governors, gave the Union and states a period of 120 days to reach an agreement.

Until an agreement was reached, negotiations required intense negotiation and flexibility on both sides. In a meeting that took place in January, the federal government argued that the “fair value” of the compensation would be between R$ 13 billion and R$ 16 billion, but went so far as to propose R$ 22.5 billion. The states, in turn, spoke of a replacement of up to R$ 45 billion and reduced the request to R$ 37 billion.