Tax reform: states will be able to create a new tax – 07/07/2023 – Market

The Tax Reform proposal approved in the Chamber this Thursday (6) brought an unexpected change that left tax experts on alert: it extended to the states the authorization to charge contributions on primary and semi-manufactured products in order to finance state funds.

The prerogative will free the states to create a new tax and represents a change in the logic of the current model, say experts.

While a tax has a broad destination, the contribution has a defined purpose. By its nature, the current rule determines that contribution is a specific type of tax that can only be established by the federal government. The only type of contribution released to the states is social security.

“It’s a complete disaster”, says Raul Jungmann, director-president of Ibram (Brazilian Mining Institute).

“The passage leads to numerous interpretations, but it is certain that its application increases the tax burden, reaching exports, constitutionalizes any and all state funds and creates a parallel regime, which goes against the simplification proposed by the Tax Reform”, he says.

The change reached the PEC (Proposed Amendment to the Constitution) of the Tax Reform through an agglutinative amendment early this Friday (7). It provides that the new rule will be in effect until December 31, 2043.

“Nobody was foreseeing this”, says tax specialist Robetto Quiroga, professor of Tax Law at USP (University of São Paulo) and FGV Direito SP, and partner at Mattos Filho Advogados. “We certainly have the possibility of a new tax, and the article is very generic.”

Quiroga claims that it will be necessary to see how the discussion will evolve in the Senate.

“It’s bizarre”, says, in turn, tax specialist Luiz Gustavo Bichara. “We carried out the Tax Reform to change five taxes for one, but we already have four: IBS (Tax on Goods and Services), CBS (Contribution on Goods and Services), excise tax and, now, this state contribution.”

“Behind this is the fact that the states created fees and funds to tax what they couldn’t and are trying not only to maintain this, but to expand it.”

The general analysis is that the wording of the text opens a loophole for the states to be able to increase the charge especially on ores and agricultural products — and in a very broad way, including on their exports, which are currently prohibited to these entities.

According to the current constitutional norm, the ICMS is not applied on exports, and the reform foresees that its substitute, the IBS, cannot be levied on foreign sales either. It was established that there will be no taxation in the final stage (sale abroad), and the company is entitled to credit for everything collected along the chain

“In the dead of night, without anyone paying attention, a gigantic tortoise was introduced in the vote on the PEC”, says Fernando Scaff, tax specialist and professor at the Department of Civil Law at USP’s Largo São Francisco Law School. Jabuti is the nickname given to changes introduced in bills that are unrelated to the original proposal of the matter.

In Scaff’s assessment, the article resurrects old problems that had already been resolved, such as the discussion of what a semi-finished product would be.

“This has already created enormous confusion in the past, when the original text of the Constitution was approved, which allowed the states, through Convênio Confaz 66/89, to create a very broad concept, in such a way that almost everything started to be taxed by ICMS”, he claims.

Scaff also points out that the Minister of the Federal Audit Court, Antonio Anastasia, when he was still a senator for Minas Gerais, proposed something similar, which would be the incidence of ICMS on the export of commodities. The proposal did not succeed.

“In this case, what is intended with the amendment is not only to allow the taxation of exports, but also to allow charging in the internal market through a ‘contribution’, a figure not removed by the reform”, he says.

Those who follow the tax discussions in the states say that the amendment replicates the collection proposal adopted at the end of last year by the state of Goiás, where Governor Ronaldo Caiado was re-elected.

Goiás created Fundeinfra, a state infrastructure fund, which started to be supported by fees that fall on agribusiness and the mining sector. Billing does not occur directly.

The government of Goiás requires the payment of ICMS on products intended for export when they leave the establishment of origin, with a commitment to return the amount after proven foreign sales. If the company does not want to undergo this temporary retention, it must adhere to a special state export control regime. This alternative, however, presupposes a contribution to Fundeinfra.

The CNI (National Confederation of Industry) questions the procedure through an ADI (Direct Action of Unconstitutionality) in the STF (Federal Supreme Court). With the amendment, the fate of this legal discussion is also left in limbo.

In a message to the report, Governor Ronaldo Caiado said that he did not articulate the inclusion of the amendment, but started to support the measure when he was informed about its content. Caiado was one of the governors who most questioned the direction of the reform.

“But I never put it as a matter of exchange with the greater principles that I continue to question regarding the content of the Tax Reform”, said Caiado.

The government also stated that it defends that the reform maintains all the constitutional funds, those to combat poverty and those to support the infrastructure that several states have created. In the same way that it defends the autonomy of the states to adopt their development policies.

Contacted by the report to comment on the repercussion, the proposal’s rapporteur, deputy Aguinaldo Ribeiro (PP-PB), did not respond until the publication of this text.