States fear losing revenue from purchases from the Union – 01/24/2024 – Market

Discussions on the regulation of the tax reform on consumption taxes began this Wednesday (24) with the concern of regional governments about the impact of the change in taxation on government purchases and the consequent effect on revenue.

The problem was the topic of the first meeting of the 19 working groups that will prepare proposals for regulating the new taxes.

Data from Ipea (Institute of Economic and Applied Research), cited at the meeting, indicate that the acquisition of goods and services by the public sector represents 12% of GDP (Gross Domestic Product), according to the content to which the Sheet had access.

The discussion will be central because the constitutional amendment enacted last year transfers the collection of taxes on consumption from the origin (where it is produced) to the destination.

The question that technicians will have to answer: is the destination the place of delivery or purchase? What happens today, for example, is a company purchases in one state, but designates delivery to be made in another state.

The work kicked off at the meeting by the Minister of Finance, Fernando Haddad. The meeting was closed and virtually brought together almost 200 technicians who will participate in the regulation, directly and indirectly.

Haddad asked that the texts of the proposals be as “round as possible” to facilitate the processing of the projects in Congress, with a less conflictive and more harmonious relationship, increasing the chances that they will be approved in 2024.

The minister said that the regulation will be “a golden opportunity” to leave the fiscal war behind and create a new federative pact.

The extraordinary secretary for Tax Reform, Bernard Appy, called for maximum alignment in order to avoid legal uncertainty and questions regarding implementation.

The Secretary of Finance of Mato Grosso, Rogério Gallo, warned at the meeting that changing the taxation of government purchases will be vital for the revenue of states and municipalities.

The secretary even asked Appy to create another working group just to discuss public sector purchases with the creation of the two taxes foreseen in the reform: the federal CBS (Contribution on Goods and Services) and the IBS (Tax on Goods and Services), from states and municipalities. There has not yet been a definition of the claim.

“Almost 60% of government purchases, around 7% of GDP, are made by the Union. We are talking about a rule that completely changes the distribution of these resources”, said Gallo at the meeting.

The secretary of Mato Grosso was chosen to represent the states in the systematization commission, coordinated by Appy, which will summarize the proposals and define the general scope of the proposals to be presented to Minister Haddad and sent to Congress.

The general rule provided for in the approved constitutional amendment establishes that CBS and IBS collections will be fully allocated to the federative entity that is purchasing the product.

The biggest concern is which products will be exceptional, especially the acquisition of fuels.

“The ICMS on these purchases, today, is collected by the states and passed on 25% to the municipalities. The rule itself establishes that exceptions can be created in operations. This is vital for the collection of states and municipalities as well”, stated Gallo.

The institutional director of Comsefaz (National Committee of State Finance Secretaries), André Horta, told Sheet that the value of 12% of GDP from government purchases was impressive.

“And being 12% of GDP it cannot be an additional topic in a discussion between these groups. I think it is worth having a specific working group to design the way government purchases are made”, said Horta, who also expressed concern about the definition of what will be considered the destination location in the reform regulations.

In the case of government purchases, those involved foresee a difficult discussion. “I imagine that the fight in the GT [grupo de trabalho] it will be to define the destination at the delivery location”, predicted the director of Comsefaz.

Appy also said at the meeting that he works to ensure that new taxes have a tax record (completed), which simplifies the taxpayer’s life as much as possible. The challenge, he said, is to look at both sides: the taxpayer and the Federation’s entities.

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What is at stake

How is it today?

Existing taxes on consumption are not only paid by people and the private sector. The government itself also pays part of the tax burden.

What changes with the reform?

The collection from CBS and IBS will be entirely allocated to the federative entity (Union, State or municipality) that is purchasing the product. In this way, all tax revenue related to the purchase will belong to the entity that is purchasing the product or service, so that it will be equal to the expense that the entity had with taxes. In other words, his income will be equal to his expenses. Experts estimate that around 5% of the IBS and CBS tax burden will be borne by the government itself via government purchases.