Chamber approves base text of new ICMS on fuels; see what changes in practice

Fuels (Photo: Getty Images)

SAO PAULO – The plenary of the Chamber of Deputies approved, on Wednesday (13), the basic text of a complementary bill that institutes a new methodology for charging ICMS by the states and the Federal District on fuels (PLP 11/2020 ).

The text, reported by Deputy Dr. Jaziel (PL-CE), by 392 votes to 71, seeks to curb price hikes in this category of products in a context of political class concern with the impacts of inflation, which has accumulated an increase of 10 .25% in 12 months in the Broad Consumer Price Index (IPCA), measured by the Brazilian Institute of Geography and Statistics (IBGE).

Fuels are one of the categories that have suffered the most readjustments in recent months. According to the IBGE, gasoline accumulates an increase of 39.60% in 12 months. Diesel oil, 33.05%. Ethanol, 64.77%. The movement is explained by a combination of factors, such as the rise in oil barrels on the international market and the appreciation of the dollar against the real.

Parliamentarians in favor of the matter also argue that the measure seeks to bring more predictability to a product that is so relevant to the lives of the population and the functioning of the economy. Critics, however, claim that the instrument will not necessarily lead to a reduction in values ​​and that the project leaves out a broader discussion on fuel price policy.

ICMS is the second variable with the greatest impact on the price of diesel and gasoline at the pump, corresponding, on average, to 27.9% and 15.4%, respectively. It only loses to Petrobras’ realization price: 33.6% and 54.0%, in that order. Although the rates have not changed recently, the increase in the final price brought an even greater impact of the tax – which generated an arm wrestling between President Jair Bolsonaro (no party) and governors.

“Regardless of Petrobras’ pricing policy, the tax burden is decisive for the high cost of fuels”, argued the rapporteur of the proposal. According to him, the measure “will help to simplify the tax requirement model, as well as greater stability in the prices of these products.”

The president of the Chamber of Deputies, Arthur Lira (PP-AL), said that the proposal to review the ICMS on fuels was the subject of agreement with party leaders, with the opposition pledging not to obstruct the session. He was one of the main sponsors of the change approved by the deputies.

“The government proposed to unify ICMS tariffs in Brazil in all states – which we all did not agree with – and what we are voting on is a project that creates an average of the last two years and, on this average, it is multiplied by the tax state of each state, with complete freedom for each state”, he affirmed.

If the new rule comes into effect, the ICMS charged in each state will be fixed and calculated based on the average price of fuel in the two previous years.

But for that, the text still needs to be analyzed by the Federal Senate and sanctioned by President Jair Bolsonaro. Until the end of this report, the deputies were still analyzing the highlights of the project’s bench – that is, changes to the text proposed by the benches.

Understand how the collection of the fuel tax is today and what it would be like with the approval of the project:

Actual model

The Tax on Transactions related to the Circulation of Goods and on Interstate Inter-municipal Transport and Communication Services (ICMS) is a tax on consumption and one of the main sources of revenue for the states.

The tax is levied on the value added at each stage of the production chain, in a debit and credit system designed to avoid accumulation.

For example: a product with a value of BRL 100.00 leaves the industry taxed at a net ICMS (that is, disregarding a set of inputs and raw materials that could reduce the value via credit) of 25% (BRL 25.00 ).

Assuming that the wholesale distribution adds a value of 50% for retail sales, the tax collected, by the principle of non-cumulativeness and taxation on the added value, is an additional R$ 12.50 ‒ considering the same rate of 25% , this time applied to R$ 50.00.

Continuing the chain, imagining that the retailer sells the same product for BRL 200.00, there would be another collection of BRL 12.50, considering the added value of another BRL 50.00 in this step and a rate maintained at 25%.

In the case of fuels or lubricants, whether derived from petroleum or not, the so-called tax substitution is applied, with charges at origin, as established by Agreement nº 110, of 2007, of the National Council for Finance Policy (Consefaz).

In practice, it is the anticipation of all ICMS charged along the product’s marketing chain. The industry, mill or refinery also collects as a wholesale, distribution and retail taxpayer the entirety of the tax that would be due. In many states that do not have their own refinery, the tax collected on distribution is higher in nominal terms, as there would be greater value added.

And the calculation of amounts due depends on the measurement of the so-called Margin of Added Value (MVA), obtained from the verification of prices practiced in retail in a specific period. The departments of Finance carry out research with the establishments to indicate to the industry the margin practiced in the product.

As gas stations can charge the price they want on the product, the industry or refinery – responsible for collecting all the tax in the chain – needs an estimate for how much the final consumer will pay for the fuel.

This is how we arrive at the famous Weighted Average Price to the Final Consumer (PMPF) in each state, the main component for defining the MVA and the amount of tax charged.

The survey takes into account criteria such as the regions and municipalities with the highest consumption in the federation unit and the amount consumed.

The values ​​are updated every 15 days, which mitigates the effect of the volatility characteristic of the international fuel market ‒ which, in addition to the fluctuation in the prices of oil barrels abroad, is exposed to the exchange rate ‒, but generates a greater lag in values.

There are five other variables involved in the calculation:

1) Tax rate;

2) Value of acquisition by the taxpayer due to tax substitution ‒ that is, the amounts negotiated between the distributor and the refinery (known as VFI);

3) Value constituted by the sum of freight, insurance, taxes, contributions and other transferable or charged charges from the recipient (FSE);

4) Index of mixture in commercialized fuel (IM). In the case of gasoline, the mixture is about 73% A gasoline and 27% Anhydrous Ethanol. For diesel, the mandatory blend involves 12% biodiesel;

5) Volume correction factor (FCV), which considers effects such as the evaporation of part of the product. Cotepe Act No. 64, of 2019, defines the factors to be applied by state. This is a measure to avoid charging ICMS on a product that did not reach the service station.

Here is the formula applied:

MVA = {[PMPF x (1 – alíquota)] / [(VFI + FSE) x (1 – IM)] / FCV – 1} x 100

To finally arrive at the calculation basis for tax substitution, it is necessary to add MVA, VFI and FSE. Multiplying the result by the rate charged, there is the amount of ICMS charged per liter of gasoline C (final consumer), respecting the mandatory mixture.

Although the PMPF seeks to reflect the average amount charged at the pump in the states, it influences the price formation itself, as it is decisive in defining the amount of ICMS charged. That’s why this has been one of the main targets in recent political debate.

The tax is the second variable with the greatest impact on the price of diesel and gasoline at the pump, corresponding, on average, to 27.9% and 15.4%, respectively. It only loses to Petrobras’ realization price: 33.6% and 54.0%, in that order.

Another methodology

Soaring fuel prices have become one of the main concerns of the political world in recent months. With the complementary bill approved tonight, lawmakers are trying to curb the movement and bring greater predictability to the consumer.

One of the main sponsors of the idea, Arthur Lira argues that the changes in legislation should lead to a reduction in the final price charged to the consumer of, on average, 8% for regular gasoline, 7% for hydrous ethanol and 3.7% for the diesel B.

By the approved substitute, operations with fuels subject to the tax substitution regime will have the specific tax rates per adopted measurement unit, defined by the federation units for each product. The text still needs to be considered by the Federal Senate.

The specific rates will be set annually and will remain in effect for 12 months from the date of publication. In other words, there will be a change in the system ad valorem (floating according to price) for the ad rem (fixed, regardless of price). The collection may not exceed, in reais per liter, the average value of the final consumer prices usually practiced in the market, considered over the two immediately preceding fiscal years.

As an example, the average prices in September of regular gasoline, hydrated ethanol and diesel oil corresponded, respectively, to R$ 6.078, R$ 4.698 and R$ 4.728, according to the National Petroleum Agency (ANP). In the form of the substitute, the rate would be calculated based on the average of prices practiced from January 2019 to December 2020. During this period, resale prices ranged from R$ 4.268 to R$ 4.483, in the case of regular gasoline; from R$2.812 to R$3.179, in the case of hydrated ethanol; and from R$3,437 to R$3,606, in the case of diesel oil.

In February, the Jair Bolsonaro government had sent a complementary bill to the National Congress to try to unify ICMS rates on fuels (including gasoline, diesel, biodiesel, ethanol, natural gas and cooking gas) throughout the country.

The text provided for the collection of the tax at the place of final consumption. The rates could vary according to the product and would be defined by Confaz, which brings together the finance secretaries of the 26 states and the Federal District.

But the solution approved by lawmakers does not bring a single rate – which reduces the resistance of governors – although it is not the ideal defended by the group.

On the one hand, there is autonomy for managers to discipline the percentages, in line with their fiscal policies – albeit with a ceiling from the PMPF of two years. Predictability is gained.

On the other hand, price fluctuation is lost (and possible revenue gains in the event of a rise in the international market or the dollar).

(with Chamber Agency)