States criticize tax reform and say they will lose revenue autonomy

The Finance Secretaries of the states and the Federal District criticized this Monday (6) the tax reform project that begins to be voted on on Tuesday (7) by the Constitution and Justice Commission (CCJ) of the Senate. In a harsh note against the government, they say that the text as it stands will affect autonomy in tax collection.

According to the secretaries, the fear is that the reform is leading to greater administrative centralization with the federalization of taxes. This, they say, is due to tax administration, which, they say, “empties” the role of the states and “rivals” levels prior to the country’s redemocratization in 1986.

“The Union already collects more than 2/3 of Brazilian taxes and is about to consolidate an almost total share of Brazilian tax revenues, leaving to states and municipalities only those of a patrimonial nature, with a low revenue flow”, says the National Committee of Secretaries State Treasury and DF (Comsefaz) in the note (see in full).

One of the points of concern is the lack of clear limits to prevent the Union from advancing the ICMS tax base, the Tax on the Circulation of Goods and Services, which is managed by the states and DF and which will cease to exist. The secretaries state that the tax represents approximately 85% of the total collected.

The secretaries also say that the text being processed in the National Congress, which creates the dual Value Added Tax (VAT), imposes “excessive links” between the state IBS and the federal CBS. The two new taxes will unify five taxes – the federal IPI, PIS and Cofins, the state ICMS and the municipal ISS – in addition to the new Selective Tax to be charged by the federal government.

The forecast is that federal taxes will come into force before state taxes, which, say the secretaries, could open gaps for a centralization of revenues that would weaken the fiscal sustainability of states and municipalities.

This is because, they claim, article 149-B of the project defines that the IBS will be a simple “mirror” of the CBS, which could harm the autonomy of the states and cause an “undue concentration of decisions on consumption taxation, which fall under subnational competence.” , next to the central power”.

“The provision of effective restrictions to ensure that there will be no advance by the Union in the tax base of subnationals is necessary so that the temporal difference does not open gaps for a round of revenue centralization, a common movement in the history of Brazilian federalism, which weakens fiscal sustainability of states and municipalities”, say the secretaries.

Also according to Comsefaz, linking IBS to CBS could enable the government to define rules for state taxes, which would “in practice” lead to a national VAT.

While the Finance secretaries ask for more discussions on the text, the proposal’s rapporteur, Senator Eduardo Braga (MDB)-AM) claims he already has enough votes to approve the text both in the CCJ and in the Senate plenary. Last week, he claimed to have the support of at least 49 of the 81 senators.