Source: Legiscenter, 22/08/2007

The state finance secretaries practically closed a majority agreement yesterday to end the fiscal war and transform the Tax on Circulation of Goods and Services (ICMS) into a tax whose collection will be concentrated in consuming states.

Only three state governments - in Espírito Santo, Goiás and Paraíba - threaten not to guarantee the unanimity necessary to convert the draft agreement into a formal and historic agreement in the National Council for Farm Policy (Confaz).

The text with the proposal to validate all current tax incentives and, from now on, to phase them out gradually, will be submitted to the next meeting of Confaz, on September 4th. If unanimity is not reached, the secretaries' idea is to present the draft as a tax reform proposal for the vast majority of states, which would facilitate its approval in the National Congress, where consensus is not required, but only support from two thirds of parliamentarians.

In numerical terms, the seats in the three states that, in principle, have reservations about the majority's proposal, total only 35 deputies out of a total of 513 (less than 7%).

The problem is that, if the end of the fiscal war depends on the tax reform vote, other issues can cross the debate and delay or prevent the completion of the changes.

The government's success in obtaining the signing of the agreement at Confaz, on the other hand, would eliminate most of the obstacles that exist for approval of the tax reform, allowing the discussion in Congress to focus on the new model of taxation in the country and not on the dispute. of interest to states.

Consensus - The difficulty in making the agreement viable is that, as a representative body of all states, Confaz can only make decisions by consensus. It is he who has the responsibility, for example, to authorize a reduction in the payment of taxes, the so-called tax benefits.

For this reason, all tax incentive contracts signed by state governments in the past two decades are subject to judicial challenge, which led the secretaries to meet to seek an honorable solution to the problem of the fiscal war.

According to the text agreed yesterday, there would be a definitive solution to the past disputes, all the benefits that remained until today would be formally validated. But, as of today, the granting of new tax benefits to companies in the states would be prohibited. What has already been granted would continue to be valid for some time yet, but within some established rules.

The benefits of the commercial sector, for example, would need to be revoked immediately, while those in the industrial segment could be fully maintained until the end of 2011 and then progressively reduced until the end of the contracts.

As of 2012, due to the right proposal, the ICMS rate charged by the states that produce the goods would also be reduced from the current 12% (Northeast) and 7% (Southeast) to just 4%. The rest of the tax would now be pocketed by recipient states or consumers, as is common in the developed world.