The increase in ICMS in São Paulo, the "tax euphemisms" and the unconstitutionality of State Decree 65,253/2020

Euphemism is an "expression that attenuates an unpleasant, crude or indecent idea" (Dicionário Houaiss da Língua Portuguesa, 2001). And a good example in tax matters is the "complementation of the ICMS rate" for some sectors of the economy, which will be effective as of January 15 of next year, pursuant to State Decree 65,253/2020.

This decree provides that (a) the internal ICMS rate of 7% applicable to the sale of condoms, certain types of eggs and their packaging "is subject to a supplement of 2.4% (...)" (i.e., from 7% to 9.4%) and (b) the internal rate of 12% applicable to the sale of various products (for example, stone/sand, iron/steel, industrial and agricultural machinery, vehicles, ethanol and diesel fuels, meals, generic medicines, furniture and mattresses, among others) "is subject to a complement of 1.3% (...)"(from 12% to 13.3%).

Take a look at the euphemism of "supplementing" the tax rate, in this case, which covers up two variants: avoiding the politically unpleasant term "increase in taxation"; hiding the legally "indecent" face of promoting the increase by means of a mere state decree and, therefore, without law.

When the 1988 Federal Constitution (CF/88) imposes the rule that an increase in the ICMS tax burden should be made by law, what is desired is that the increase in the ICMS tax burden be discussed by the Legislative Assembly, from a plural perspective (several parties and world views), until reaching - or not - a majority consensus on the relevance of increasing a tax. This is what gives legitimacy - legal and political - to the rule that will force people and companies to pay more taxes, which is very (but very) different from this same obligation to come from the unilateral will and channel of the head of the Executive Branch. This is the beauty of the constitutional rule of limitation of the power to tax inherent to the Brazilian State.

Article 22 of State Law 17293/20 does not provide legal support for the "complementary" state decree on ICMS rates, since it contains another euphemism, this time more Machiavellian, that "for the purposes of this law, the tax benefit is equivalent to a rate fixed at a level below 18%. However, the internal ICMS rates are set by law and there is no hierarchy between them. Thus, a rate lower than 18% is not a "tax benefit": it is (and always has been) simply the rate applicable to the sale of the products set forth by law! And, if so, only another law, with the parliamentary sieve, may increase them, pursuant to article 150, I of CF/88 and the case law of the Federal Supreme Court.

Fabio blog
Fabio Cunha Dower Lawyer and Tax Consultant at Miguel Silva & Yamashita Advogados
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