ICMS in RJ: ‘new’ charges and old problems – 08/30/2023 – What tax is this

Since Constitutional Amendment No. 31/2000 was enacted, the states and the Federal District have been authorized to establish State Funds to Combat Poverty (Fecp) financed by additional collection of ICMS on superfluous products and services.

Initially, the state of Rio de Janeiro instituted the Fecp in 2002 and the subject was a reason for conflict. Taxpayers took the matter to the STF (Federal Supreme Court) on numerous occasions due to allegations of unconstitutionality, among them, charging for products and services that are evidently not superfluous.

Recently, however, the state of Rio published Complementary Law (LC) 210/23, revoking the previous law with the aim of “restructuring” the Fecp, providing for the obligation to pay an additional 2% or 4% of ICMS on numerous operations, among them, with fuel, communication and electricity. This attempt to increase tax collection entails, however, the violation of the Federal Constitution and the position of the STF, which will certainly lead to the judicialization of the subject and the effect will be exactly the opposite of what was intended, creating a gap in public accounts.

The reading of what should be understood as “superfluous” goes through the analysis of what would be, in contrast, “essential”. And the STF, when analyzing the issue, decided that communication services and the supply of electricity are essential, which would make it impossible for states to institute a higher ICMS charge than that applicable for regular operations, as decided in Extraordinary Appeal 714,139 , judged on December 18, 2021.

And following this understanding, the National Congress edited LC 194/22, to make it clear that “fuels, natural gas, electricity, communications and public transport are considered essential and indispensable goods and services, which cannot be treated as superfluous”.

Even faced with the opportunity to enact new legislation that reflected this context, Rio de Janeiro chose to ignore all understanding on the matter by instituting an evidently unconstitutional charge.

The unconstitutionality of this charge is evidenced for two reasons: first, because it goes against the federal law on the subject, a competence attributed by the Federal Constitution; and second, because it institutes charging at higher levels than regular operations.

As a result, the additional collection of ICMS will cause losses to the population of Rio de Janeiro, since the financial burden of this unconstitutional increase will be passed on to the final consumer in the price of products and services.

Moreover, these undue charges will certainly be prosecuted, which could lead to the reverse effect intended by the state: instead of increasing the collection with the additional tax, the state will have to reimburse taxpayers for payments made improperly, leading to countless losses to the public coffers. state.

In this context, by instituting the “new” Fecp, Rio de Janeiro violates the Federal Constitution and the position of the STF, which must be recognized by the Judiciary.

As a result, Rio de Janeiro loses the opportunity to create an attractive business environment for investors by generating a scenario of clear legal uncertainty, which could push away investments in the state.

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