São Paulo proposes to unify interstate rate at 4%

By ETCO

Author: Patrícia Acioli

Source: DCI, 18/08/2009

SÃO PAULO - With the tax reform in a “double boiler” in Congress, the State of São Paulo anticipated itself in an attempt to resolve the conflict of the fiscal war. At the beginning of the month, Fazenda São Paulo submitted a proposal for an agreement to amend the legislation on the Tax on Circulation of Goods and Services (ICMS) - a tax that represents the largest share of the states' revenue. The main focus of analysis in the National Council for Farm Policy (Confaz) is the unification, in 4%, of the rate for the calculation base in interstate operations.

"With the worsening of the fiscal war, which is getting worse and worse, and the fact that the Tax Reform did not go as expected, São Paulo is making a new attempt to reduce the tax dispute between the states," said Otavio Fineis Junior, coordinator of the Tax Administration of the São Paulo Finance Secretariat. The objective, according to him, is to resolve the federal ICMS issues together. "It is not an isolated exit," he said.

Bahia's Finance Secretary, Carlos Martins, who is the current coordinator of Confaz, says that the São Paulo proposal still has some obstacles to be overcome, but that he is “optimistic”. According to Martins, the document was sent to all states, which have 10 days to make calculations about the financial effects of the measures presented. “We will have a meeting in São Paulo, on the 31st, to define the points of the final proposal to be presented in September, at the Confaz meeting in Maranhão”, he stressed.

The fiscal war issue returned to the Confaz agenda, according to Martins, at the last meeting of the Council, due to issues raised by São Paulo. "So, as he was the protagonist of the debate, it was agreed that he would present a proposal for an agreement based on the points of discussion," said the Bahian Finance Secretary. For Martins, the agreement, if signed, could unlock the Reformation and facilitate its voting.

Fineis says that the motivation for the initiative was the resurgence of the fiscal war and the fact that the Reformation did not move in the direction expected. According to him, the states need to be attentive to issues related to the ICMS, “which is the most productive tax in the country and the one that yields the most in terms of tax collection. The states have to be able to resolve the conflicts and take the lead in the discussion, not waiting for a solution from the federal government or a constitutional amendment ”, he added.

One of the solutions presented by São Paulo is the unification of 4% of the rate for interstate operations, "it has the advantage of discouraging the fiscal war and prevents it from allowing companies to move from one state to another just by the criterion of tax incentive", explains Fineis . Today the rates are between 7% and 12%. "The rate [of 4%] is almost half of what is practiced in the current situation and has the function of minimizing losses and gains between the states", he explained.

The coordinator of the Tax Administration of the São Paulo Finance Secretariat also says, in defense of the 4%, that the proposal is reasonable, because it does not have the impact of 0%, as some states claim, or even 2% as the text brings. of the federal government's tax reform. The idea, according to Fineis, is that this rate can reduce the attractiveness of granting benefits, but at the same time allow states to have scope to continue offering incentives, which would be released, as long as it is communicated to Confaz.

The terms presented to Confaz would work independently of the Tax Reform, say the finance secretaries. Some states have signaled positively for the proposal. This is the case of Mato Grosso. The state finance secretary, Eder Moraes, was the author of one of the points that the São Paulo proposal took on the ICMS division in the case of direct sales (via the internet). The initiative, according to Fazenda Mato Grosso, solves a problem, which has been aggravated by the increase in sales over the internet. “This is one of the points of conflict between the states. The direct sale to the final consumer is constitutionally determined to remain at the origin ”, said Fineis. "But we think that in an ICMS reform this needs to come."

Among the measures are the validation of all tax benefits granted until the date of approval of the proposal. “We established the cut line as of July 5, 2008, which was when we resumed the discussion in the context of Confaz”, said Fineis. "This is a skeleton that all states will have an hour to resolve," he said, citing as an example Pará, Paraná and Rondônia, whose decision by the Supreme Federal Court forced the retroactive payment of the benefits granted. But that item will need to be negotiated. The Pernambuco Farm, for example, has already expressed its opposition to the cut-off date. Full tax substitution is part of the agreement. The idea is to unify the tax burden, ending simulations of interstate operations, "establishing ample collection at source in favor of destination states," said Fineis.

With the Tax Reform in a “bain-marie” in Congress, the State of São Paulo anticipated itself, in an attempt to resolve the conflict of the fiscal war, and proposed the unification of the interstate ICMS rate at 4%.