In a press statement this Monday (6), President Jair Bolsonaro announced a proposal to cut state taxes on fuel in exchange for compensating for lost revenue from federal resources.

The idea is to approve a PEC (proposed constitutional amendment) that would allow states to eliminate the ICMS (goods and services tax) levied on diesel fuel and LPG (kitchen gas). In doing so, state governments will receive financial compensation equivalent to the revenue that will no longer be collected.

“We have reset PIS/Cofins [imposto federal] from last year and as long as the governors understand that they can also reset the ICMS, we, the federal government, will reimburse the governors for what they do not collect,” Bolsonaro said at the Palacio do Planalto.

President of the Republic Jair Bolsonaro talks about the fuel situation at a press conference at the Planalto Palace in Brazil. Photo: Fabio Rodriguez-Pozzebom/Agência Brasil/North Dakota.

During the announcement, he was accompanied by Chamber of Deputies Presidents Artur Lira (PP-AL) and Senate Presidents Rodrigo Pacheco (PSD-MG), as well as some of his top ministers such as Paulo Guedes (Economics), Adolfo Sahcida (Mining and Energy) and Shiro Nogueira (Civil House). Before the press release, they met at federal government headquarters to discuss measures.

For the government’s proposal to be viable, approval of a project that limits the application of the ICMS rate to goods and services related to fuel, natural gas, electricity, communications and public transport needs to be secured. The PLP (Supplementary Bill), passed by the House and now being reviewed by the Senate, sets a maximum rate of 17% for these sectors, and also provides for compensatory mechanisms for the states.

“Here we hope, as it is democratically, that the Senate has the serenity, autonomy and sensibility in PLP 18. And that after that we will process a PEC that authorizes the federal government to reimburse the states that are available to dump these state taxes without prejudice to the governors,” said Chamber President Arthur Lira.

exception

According to Economy Minister Paulo Guedes, the current situation requires cooperation between the Union, states and municipalities. “Everyone must cooperate. States and municipalities are in a situation they have never been in before. Everything in the balance sheet, in blue, pays suppliers. They have their accounts up to date, they even increase their salary. We reaffirm our commitment to protecting the people of Brazil through cooperation between the subjects of the federation,” he explained during his speech.

The government’s idea is that the PEC would serve to compensate states for a possible zeroing of the ICMS, rather than remain below the 17% ceiling if the Senate approves a bill pending in the House of Representatives. “The idea is that some of it goes through that 17% ceiling, which is cooperation between states and municipalities. And the federal government, on the other hand, transfers resources to any tax cut that goes beyond this, ”the minister explained.

Also, according to Gedes, the measure will be valid until December 31 this year. He did not say what the budgetary implications of reimbursement to States would be. “We have extraordinary incomes that have not yet been allocated in the budget, this transfer to the subjects will be limited to these incomes,” he said.

Senate

The President of the Senate said that the proposals of the government are welcome and that the issue will be widely discussed in the House of Representatives, including taking into account requests from the States. As for advancing an additional bill that limits the speed of the ICMS, he said he expects a concise definition.

“We hope to have a definition very soon with respect to this report by Senator Fernando Bezerra Coelho, but, in fact, the opportunity for dialogue, consensus and, more importantly, in favor of the end consumer regarding the most serious problem that we have today is overestimated. the price of fuel at a gas station,” said Rodrigo Pacheco.

gasoline and ethanol

President Jair Bolsonaro has also said that the federal government will zero out federal taxes (PIS/Cofins and Cide) on gasoline and ethanol to try and bring down the cost at the gas station. These taxes are zero on diesel and cooking gas.

“If there is understanding on the part of the senators, if an additional bill is approved, if the amendment to the Constitution is passed very quickly, it will immediately enter into force at the end of the line, this is a reduction in the tax burden to face this problem outside of Brazil, which has implications for all of us here,” Bolsonaro said.