States resume pressure against ICMS ceiling with judicializations

Since last Wednesday (27), four Brazilian states have secured with the Federal Supreme Court (STF) favorable measures to requests related to the effects of the ICMS ceiling. The actions are a reaction to the drop in revenues caused by the imitation of the tax rate levied on fuel, energy, telecommunications and transport after the additional law sanction 194/2022in June.

The first injunction was granted to Maranhão and suspends the payment of installments of the state’s debt with the Union and with five banks after the Maranhão government declared itself unable to meet the commitments because of embezzlement in the coffers. With the new law, states can no longer charge ICMS above 17% on the items covered, in an abrupt cut that will remove R$ 54 billion from them in collection until the end of the year, according to the state Treasury departments, with a risk to maintenance of essential services such as health and education.

In the decision made by the government of Maranhão, Minister Alexandre de Moraes wrote that it was “possible to say that the restriction on state taxation […] entails a profound imbalance in the account of the federation entities” and that the norm makes “excessively onerous, at least at this stage, to fulfill the obligations contracted in the financing contracts that make up the public debt of subnational entities”.

Subsequently, the states of Alagoas, Piauí and São Paulo were also able to obtain favorable decisions on claims presented to the STF because of the shrinking of collections. O Alagoas government obtained an injunction similar to that of Maranhão. Signed by the minister and president of the Supreme Court, Luiz Fux, the decision is for the momentary interruption of debt payments in contracts administered by the National Treasury Secretariat (STN). According to the state, the loss of revenue between July and December is estimated at R$ 461.5 million.

Already Piauí and São Paulo reached decisions related to compensation by the loss of revenue from ICMS – which by law is restricted to drops in collection that exceed the level of 5%. The two injunctions were granted by Moraes this Sunday (30). With the success of the lawsuits, the perspective is that other states will opt for judicialization as a way to stop the tightening of taxation. Together, the 25 federation units that have debt installments to pay still owe BRL 11.3 billion to the federal government in 2022.

Pressure from states is not new, but previously it has only encountered setbacks. While the bill was being processed, finance secretaries and governors moved in an attempt to contain the measure, which, in practice, means less cash to run a public machine that would not change in size. At State onslaughts were more intense during the process in the Senate, but did not yield the intended results. Compensation for losses fell short of what was claimed and the cut in the ICMS rate was immediate and dry, without progressive reduction to the fixed rate, just to mention some of the alternatives presented in an attempt to cushion the blow.

Despite directly interfering in the collection of states, the then Complementary Law Project 18 was embraced by the government of Jair Bolsonaro and by parliamentarians as a way out to hold prices and alleviate inflationary pressure a few months after the elections. The fixing of a ceiling for ICMS collection, in general, meant exemption, since previously the rate was defined state by state and, in some cases, reached more than 30%.

According to the text approved and sanctioned, there will be compensation for the tax waiver imposed on the states, however it is not full and is limited to 2022, despite the fact that the exemption itself is permanent. Losses will be covered whenever there is a drop in revenue of more than 5% compared to the amount collected in the previous year, 2021; any losses less than the indicated threshold will be absorbed by the states.

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