STF judges new agreement on state losses with ICMS on fuel

The plenary of the Federal Supreme Court (STF) began judging this Friday (26) whether to endorse a new agreement negotiated by the states, the Federal District and the Union, in which the federal government undertakes to pass on R$ 26, 9 billion, until 2026, in compensation for losses in the collection of the Tax on Circulation of Goods and Services (ICMS) with the exemption of fuels.

The agreement was announced by the Minister of Finance, Fernando Haddad, in March. This is a new deal. Another partial agreement was approved by the Supreme Court in December last year. With the change of government, however, a new understanding was negotiated directly between the economic team and governors, informed Agência Brasil.

So far, only the rapporteur, Minister Gilmar Mendes, has voted. He was in favor of the ratification of the agreement. “I believe that all legal interests are balanced and well represented in this historic agreement at the federal level,” he wrote. The case is judged in the virtual plenary, in which there is no in-person deliberation. The other ministers have until 23:59 on June 2 to vote.

Agreement history

The need for compensation was created after the approval, in June of last year, in Congress, of two complementary laws that exempted the ICMS levied on the sale of fuel, one of the main sources of revenue for the 27 federative units. The objective was to contain the increase in prices at the service stations.

The legislation provided for compensation to the states and the DF, but then-president Jair Bolsonaro (PL) vetoed the device. After Congress overturned the veto, the case ended up being taken to the Supreme Court. Faced with the political and legal impasse, Minister Gilmar Mendes, one of the rapporteurs on the subject, created a special commission to promote a conciliation.

In a first agreement, approved in December, the federative units agreed to maintain the essentiality of diesel, natural gas and cooking gas, as defended by the Union. As a result, the ICMS levied on these products was limited to the general tax rate, somewhere between 17% and 18%, depending on the federative unit. Previously, it had stated that it charged more than 30% of ICMS on fuel.

At the time, gasoline was left out. The states’ argument prevailed that the item is not essential, since it is the people with the highest purchasing power who own cars, and they are the ones who benefit most from any exemption on the product.

New ICMS agreement

Now, the Supreme decides whether to ratify the new amount for compensation, after the parties agree on the estimated loss of revenue. Of the R$ 26.9 billion agreed, R$ 4 billion must be paid by the Union later this year. The remainder is for 2025 and 2026.

So far, states and the DF have already obtained preliminary injunctions (provisional decisions) from the Supreme Court to suspend around R$ 9 billion in installments of debts with the Union, in order to compensate for the loss with the exemption of fuels.

The agreement, which now intends to be definitive, provides for rules so that the Union can also deduct this value from the total still to be compensated, according to the situation of each state. According to the Treasury, some units of the federation were able to compensate even more than they would have to receive. There are states that haven’t achieved anything yet.

Of those who still have a balance to be received, the rules provide that states with up to R$ 150 million in compensation will receive 50% in 2023 and 50% in 2024, with funds from the National Treasury. States with compensation between R$150 million and R$500 million will receive one third of the amount in 2023 and two thirds in 2024. States with more than R$500 million will receive 25% in 2023, 50% in 2024 and 25% in 2025.