Brazils government to compensate states $5.2 billion for cut in state tax ICMS

BRASILIA (Reuters) – Brazils Finance Minister, Fernando Haddad, announced on Friday that the federal government will provide compensation of 26.9 billion reais ($5.2 billion) to states for their losses due to the reduction of the state tax ICMS.

The Congress approved a ceiling on ICMS tax rates for fuels, electricity, telecommunications, and public transportation services last year with the support of then-President Jair Bolsonaros government, as part of efforts to reduce inflation.

The law already provided for federal government compensation, but there was no consensus on the amount to be transferred.

According to Haddad, the figures presented for compensation, which the Federal Supreme Court sought to mediate, ranged from 18 billion reais to 45 billion Brazilian reais.

Speaking at a news conference, the minister emphasized that part of the agreed-upon amount had already been compensated by reducing states debt with the federal government.

Treasury Secretary Rogerio Ceron, who also attended the news conference, said the measures impact on federal accounts this year is estimated to be around 4 billion reais.

Regarding Brazils new fiscal framework, Haddad said it would only be detailed after President Luiz Inacio Lula da Silva gives his final word on the project.

The minister said that it would be presented to the president as soon as he opens his agenda for this next week.

The market awaits the new framework after Lula secured Congress approval for a multi-billion-real spending package that bypasses the constitutional spending cap to meet campaign promises.

($1 = 5.1924 reais)

(Reporting by Marcela Ayres; editing by Diane Craft)