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Governors told to impose more taxes to ‘make up for losses’

Governors will have to increase the standard average ICMS rate by four percentage points, from 17.5% to 21.5%, starting in 2023, to compensate for the loss of revenue excluding fuel, electricity and telecommunications.

This is the result of a survey conducted by the National Committee of Secretaries of State Finance (Comsefaz), obtained by Estadão. Four states – Pará, Piauí, Paraná and Sergipe – have already submitted a tax increase proposal to the legislative assemblies and others should follow suit.

THE ICMS Collection of these three items, corresponding to about 30% of the total collection of the States, were removed this year by Congress to reduce prices and inflation, before the elections. It ended up becoming a headache for governors who are already feeling the loss of revenue. The committee is recommending that states make the adjustment to neutralize the impact of measures that undermined funding for public policies, such as health and education.

🇧🇷The change in progress by some states was already expected. Lawyers like Heleno Torres and tax lawyer Eduardo Fleury already predicted the change so that there would be no waste of resources in financing public services.“, says the institutional director of Comsefaz, André Horta.

The Comsefaz survey was conducted to support new and re-elected governors in decision-making on the financial program from 2023. Today, the standard rate, called modal in tax jargon, varies in states between 17% and 18%. The standard rate constitutes one third of the income of all states with ICMS in year.

ICMS Collection

How much would each state have to raise the rate to make up for the revenue loss with the fuel, power and telecommunications cap:

image: Estadão / Comsefaz

The rate increase could provide R$ 33.5 billion and neutralize the loss of revenue in the group of states that responded to the Comsefaz survey. The state of Goia, for example, will have to increase the modal rate from 17% to 24.2% – the biggest move according to the survey that evaluated 17 states and the federal district.

To come into force next year, the new ICMS standard rate for rebalancing governors’ accounts should be proposed in 2022, taking into account the principle of tax priority. 🇧🇷If the assemblies do not approve this year, the change will not be implemented in 2023. Only in 2024“, warns the study.

The director explains that the rate increase would be to maintain the same tax burden before the changes approved by Congress. He explains that the modal toll is charged heterogeneously across states. In his estimation, there are other ways to reorganize finances, but the study calculated more”intuitive and fast🇧🇷 And among the alternatives of increasing taxes, is the restructuring of income by reducing the benefits of economic sectors.

Horta draws attention to the fact that two-thirds of ICMS state collections do not come from the application of the modal fee. 🇧🇷Governments are putting forward proposals to recover the same level of income“, Horta said. He recalls that the decision on the agreement that is being sewn in the Federal Supreme Court (stf) for loss compensation with a ceiling on “essential” services and goods was postponed last week for 120 days.

With information from Estadão*

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