MercoPress. South Atlantic News Agency

Forum of Brazilian Governors agrees on tax freezing to curb inflation

“We are in favor of the section of the law regarding the creation of a fuel aid and the fuel price stability fund,” Governor Dias said

A forum of Brazilian Governors Tuesday agreed to extend for another 90 days the freeze on the average Tax on Merchandise Circulation (ICMS) that is levied on gasoline, ethanol and cooking gas to help mitigate inflation's impact on the citizenry's purchasing power, it was announced.

Forum Coordinator and Governor of Piauí Wellington Dias conveyed the news to the media after a meeting in Brasilia with governors, vice-governors, and secretaries.

The freeze has been in force since Nov. 1 last year and was due to end March 31. The extension starts on April 1st.

During Tuesday's meeting, the governors also discussed the possible setting of a single rate for the ICMS on fuel, as sanctioned last week by President Jair Bolsonaro (Complementary Law 192/22).

According to Dias, the Council of Finance Secretaries (Comsefaz) has until March 24 to come up with a formula for the collection of the tax that must be applied initially to diesel oil. The challenge is to find a calculation average that does not imply an increase in the tax in some states, which would increase the price of fuel.

Dias explained that at least nine states and the Federal District have a lower ICMS rate on diesel than other states. To avoid the increase, the secretaries are considering applying a tax incentive to offset the increased rate in these states.

“We are authorizing the council of treasury secretaries this Thursday to hold a Confaz [National Council of Treasury Policy] meeting to approve a resolution there that can be the parameter for applying the law in the 27 units of the federation,” said Dias.

“We are in favor of the section of the law regarding the creation of a fuel aid and the fuel price stability fund,” he added.

The governor also said that during the extension period of the ICMS freeze, the secretaries will look for a formula that can be applied to gasoline. “During this period, the Council of Finance Secretaries must deal specifically with gasoline,” he said. “We have not yet managed to find an alternative for this pact,” he added.

The Forum also agreed to file a lawsuit in the Federal Supreme Court (STF) to challenge an article of the law that states that, until the ICMS levy is regulated, the calculation should take into account the average price of diesel charged to the final consumer in the 60 months prior to its fixation.

At the meeting, the governors also discussed the reduction of the Tax on Industrialized Products (IPI). The measure, announced by the federal government in February, reduced the tax by 25% for most products. Dias said that the governors saw the way the government was adopting measures as a “concrete threat” to states and municipalities, in violation of their autonomy and of the federal pact, which should cause a strong impact on the collection of states.

“A unilateral measure such as the one taken by the Union is regarded by us as a breach of the federative pact,” added Dias, noting that the states should also appeal to the STF against the measure.