O Globo - 25/07/2011

By LUIS PAULO ROSENBERG and MICHAL GARTENKRAUT

We have witnessed intense debates and discussions for which entrepreneurs, workers and politicians preach the fight against what was conventionally called "fiscal war" and "war of the ports". At the center of the debates is the granting of ICMS incentives by state governments, with the objective of attracting investments and promoting the flow of imports in regions with less economic dynamics.

The time is ripe for discussion, as the topic should be part of any proposed tax reform, and it frequents the media especially after the presentation of draft resolution No. 72 of the Senate. Such measure proposes the reduction to zero of the ICMS rates on imports and on interstate transactions of products from abroad and with no added value in the State of origin.

The justification for the Senate proposal is that tax incentives are "detrimental to national production, causing an explosion in imports with substantial losses in production and jobs". The draft resolution argues that reducing the tax rate to zero would remove the ability of states to grant incentives, thus ending fiscal competition.

In our opinion, in its original format, the proposal is impracticable because it does not encourage the State of origin to inspect its application, and it would be extremely difficult to distinguish, in interstate transactions, imported products and those without any elaboration in the State of origin.

The thesis that underlies the proposal, of a strong impact of incentives on imports, is not confirmed in the figures. The study “Imports and tax incentives: deconstructing myths”, prepared by Rosenberg & Associados for the Brazilian Association of Foreign Trade Companies (Abece), does not confirm this thesis. The work shows that 99% of the behavior of Brazilian imports in recent years is explained by GDP growth and exchange rates.

An ICMS tax incentive can have an impact on the effective price of the imported product in reais, but many of these products are treated differently by international treaties. In addition, since the ICMS is levied "on top" of the import tax, of up to 35% (an adequate protection for national production), the impact of the incentives becomes very small when compared to the valued exchange rate and the growth of the economy. They may have promoted a relocation of import flows through different routes and ports of entry, never a significant loss of production and jobs.

The STF has already pronounced on the incentives incisively and unanimously. It is important to clarify that, in STF decisions, the illegality refers to the fact that the operations were not submitted to Confaz's unanimity.

It is also worth noting that the legal basis for decisions, in addition to the Constitution, is Complementary Law 24, 1975, based on the then existing concern that the autonomy of States could lead to loss of revenue and the deterioration of state finances; and in the centralizing model in force at the time.

Both arguments are overcome with the advent of redemocratization, which defends political decentralization, and the Fiscal Responsibility Law, 2001. The effort to propose a tax reform is commendable, but this cannot happen based on an eminently political decision. and little technical evaluation. You cannot extinguish regional development instruments, which have brought great improvements to the poorest states, without putting anything in their place. We will not evolve if the proposals insist on outdated models and without a safe transition taking place, within an appropriate time frame.