Short memory of Brazilians and the ICMS on electricity tariffs

We already know that Brazilians have a short memory, but the changes in relation to the incidence of ICMS on electricity tariffs have also helped a lot to bring about so much confusion in understanding the topic.

So, let's bring a little history to understand the entire context surrounding the ICMS topic on electrical energy.

Since 1934, the Brazilian Federal Constitution has provided that the States are responsible for collecting taxes on tangible assets.

Subsequent constitutions improved the expressions used over time, and today the main incidence of ICMS is related to the circulation of goods, according to article 155 of the 1988 Federal Constitution.

And electrical energy is considered a commodity. It is provided for in the civil code as movable property. In the incidence table of Taxes on IPI (Industrialization Products) it is typified as a product.

The criminal code has a specific provision for the crime of energy theft, as it is stipulated that energy is equivalent to movable property.

Since then, the states have been doing what they want on the subject of ICMS taxation on electrical energy.

Exorbitant rates were applied, the calculation basis computing everything and a little more, since there is a tax that almost no one fails to pay, it is the ICMS levied on the electricity bill of the captive consumer – the one who depends on the electricity distributor to receive energy.

But, in December 2021, a decision by the STF (Supreme Federal Court) gave a first shake-up to this entire topic.

A decision on the merits was handed down on Extraordinary Appeal (RE) 714.139/SC, in the context of General Repercussion (Theme nº 745) (Recte. Lojas Americanas SA and Rcdo. State of Santa Catarina), establishing that the ICMS rates on operations of electrical energy and telecommunications services could not be superior to operations in general due to the precept of selectivity.

Therefore, given the essentiality of both items, the tax burden attributed to them must be less than or equal to that of internal operations, which varies from 17% to 18%, according to state definition.

However, in order not to impact the public coffers, the STF modulated the effects so that this decision would only take effect from the 2024 financial year, except for actions filed until the start of the judgment on the merits, on February 5, 2021.

It was time to celebrate, as consumers were paying 30% in ICMS on their electricity bill, as was the case with miners.

As an election year always has a lot of legislative news, 2022 was no different. In the same week of June last year we had two electoral rules.

The first, taking advantage of the inflationary economic situation in the country at the time, which had fuel as one of its pillars, used Complementary Law 194/2022 to cool the climate, and at the expense of the States, reduce the ICMS on fuels , natural gas, electricity, communications and public transport.

The second, four days later, Law 14,385/2022, brought the obligation for electricity distributors to return the PIS and COFINS collected, the greater amount resulting from the inclusion of ICMS in the calculation basis of these contributions, which the STF decided was unconstitutional in 2017, as well as no longer including ICMS in the basis of these contributions from now on.

Everything seemed spectacular for the electricity consumer, who was therefore no longer burdened by ICMS with rates higher than 17 or 18% on the TE tariff component; exclusion of TUST, TUSD and charges from the ICMS calculation base; and exclusion of ICMS from the PIS and COFINS calculation base.

But like everything that comes easily, it goes away easily too.

At the end of 2022, the states of Piauí (Complementary Law No. 269, of 12/08/2022), Bahia (Decree No. 21,796, of 12/23/2022) and Mato Grosso do Sul (Decree No. 16,073, 28/ 12/2022) went back and issued legislation insisting on the reestablishment of the increased ICMS rate on telecommunications and electricity services, simply ignoring Complementary Law No. 194/2022.

The last two also once again demanded the FECOP (State Fund for Combating and Eradicating Poverty) for telecommunications and electricity services.

In this sense, the rates in force for 2023 are:

• Bahia: 26% of ICMS and 2% of FECOP;
• Mato Grosso do Sul: 27% of ICMS and 2% of FECOP; It is
• Piauí: 27% of ICMS.

Bahia and Mato Grosso do Sul did not even respect the nineagesimal precedence, demanding the increased rate from January 1, 2023.

Such federative entities are based on the idea that the modulation of effects brought by the STF upon the judgment of RE 714.139, which established the future effectiveness of the reduction in the rate from the 2024 financial year, remains applicable even after the edition of LC 194 /2022.

The rules establishing the increase even expressly cite the decisions of the STF among their justifications to explain the increase in the tax. Interestingly, they did so near the end of 2022, when the scenario for the presidential election was already defined.

But then what changed?

So far, what the states have done is increase the ICMS rate on TE for the year 2023, but it seems that in 2024 they will have to decrease it again, respecting the STF's decision on modulating the effects, otherwise it will be difficult explain that neither the Complementary Law nor the decision of the STF is respected.

Finally, to add spice to the confusion, the Plenary of the Federal Supreme Court endorsed an injunction granted by Minister Luiz Fux to suspend the legal provision that removed tariffs for electricity transmission and distribution services and charges from the ICMS calculation basis. sectors linked to energy operations.

The decision was taken in the virtual session of the Plenary concluded on March 3, in the analysis of ADI (Direct Action of Unconstitutionality) 7195, filed by governors of 11 states and the Federal District.

In the action, the governors question changes promoted in the Kandir Law (Complementary Law 87/1996) by federal Complementary Law 194/2022, which classifies fuels, natural gas, electricity, communications and public transport as essential goods and services, which prevents the setting rates above those established for operations in general.

Among other points, the rule removed the amounts in question from the state tax calculation basis.

One of the reasons used by Minister Luiz Fux was that the changes promoted by Complementary Law 194/2022 result in a loss of revenue of approximately R$ 16 billion every 6 months.

Now, Complementary Law 194/2022 was approved by the National Congress. Is it possible that legislators did not know that ICMS collections on the main goods and communication services across the country would decrease?

And how are we now?

Exactly as in the 1988 Constitution, with states applying rates higher than 17 and 18%; with an expanded calculation base to include TUST, TUSD and sectoral charges.

Only the exclusion of ICMS in the PIS AND COFINS calculation base remains in place for now, as energy distributors are also not willing to return the amounts recovered to consumers, and have already filed a lawsuit to seize this money.

The opinions and information expressed are the sole responsibility of the author and do not necessarily represent the official position of Canal Solar.