Regardless of the size of your company or business, the fact is that every entrepreneur needs to be aware of the taxes they must pay. Understanding all about ICMS (Tax on Goods and Services) is a good start to staying up-to-date with official agencies and avoiding fines and penalties.
In today's post, we'll help you understand what ICMS is, what it's for, how it's calculated, and what goods it's levied on, among other essential information about this tax. Follow along and get your questions answered!
The Tax on the Circulation of Goods and Provision of Interstate and Intermunicipal Transportation and Communication Services, whose acronym was simplified to ICMS, is a tax under the jurisdiction of the states and the Federal District.
It applies to the circulation and transfer of ownership of products in general, from food, consumer goods such as household appliances, electronics, clothing, automobiles and even some services, as we will see below.
Constitutionally, the ICMS was regulated in complementary law 87/1997, known as the Kandir Law.
This tax represents the largest source of revenue for some Brazilian states, which use it to contribute to their budgets. Therefore, it is up to them to establish the amounts and collection schedules corresponding to these tax operations, which causes rates to vary from one location to another.
Essentially, it's a tax levied on goods destined for commerce. Furthermore, some services also generate ICMS (Tax on Goods and Services), in addition to ISS (Service Tax), which is the responsibility of municipalities.
Some specific services, such as communication, interstate transportation and intercity transportation, pay ICMS and are exempt from ISS.
It's worth remembering that when ICMS addresses the circulation of goods, it doesn't refer to their movement between cities, states, or even distinct regions of the country. The factor that really needs to be considered is the transfer of ownership, particularly in commercial relations.
As an example, if a store iron and steel has branches in different states and the transported merchandise is simply being transferred from a stock to one of its units, it is not subject to ICMS incidence, as there was no change in ownership.
Another important characteristic of the ICMS is that it is a non-cumulative tax. This means that the offsetting of debits and credits provided by the system aims to reduce the tax burden within a single production chain.
Unlike many other taxes, ICMS rates are selective and based on the essentiality of a product.
This means that the more essential the good, the lower the tax rate. The reverse also applies: the less essential the product, the higher the tax rate.
Therefore, the tax rate varies according to two different factors:
However, most states use a tax rate of 17% on the price of the goods for a range of products. The calculation is very simple and expressed by the following formula:
price x rate = tax
For example, if a product costs R$ 5,000.00 and its tax rate is 18%, the tax amount will be:
R$ 5,000 x 18% (or 0.18) = R$ 900
Another point worth highlighting is that, when selling the merchandise, the company already includes the ICMS tax in the price. It is not added at the end of the transaction.
All companies or individuals that provide a product or service frequently and in large quantities, which characterizes a commercial operation or circulation of goods (sale, transfer, transportation), must collect and duly pay ICMS.
As mentioned previously, the same requirement applies to companies that provide interstate, intercity or communication transportation services.
ICMS is always levied in the state of origin of the goods or services provided. The only exception is when it comes to petroleum derivatives and electricity.
Because it is an indirect and regressive tax, it causes those who earn less to pay proportionally more. Therefore, when purchasing a product, a citizen with a lower income commits proportionally more of their budget to this tax than someone with greater purchasing power.
Late payment of this tax will result in an additional charge. The SELIC rate accrued from the due date applies to the calculation of late ICMS.
As the rates are defined by each state, and there are some differences between the federations, the ICMS Rate Differential was an instrument created to protect the competitiveness of the state where the commercialization actually takes place.
For many years, all ICMS tax was allocated to the state of origin of the product, where the seller was located.
This tax war, which led experts to purchasing management seeking suppliers from states where the rates were lower, as well as the consolidation of e-commerce, required an adaptation of this rule.
Currently, customers from all over the country buy from establishments located in different states, resulting in a concentration of revenue in some states and an evasion of resources in others.
Therefore, a change in the rules was made to share ICMS revenue between the states of origin of the products and the state where they will actually be consumed, that is, their destination. The goal is to minimize the impact of lost wealth, as consumers no longer buy from local suppliers and instead access stores in other states.
Let's give an example: if an industry in the state of Rio de Janeiro buys raw materials from an e-commerce site in São Paulo, the difference between the two rates will be divided as follows: 60% of ICMS will go to the state of São Paulo (origin) and the remainder will go to the state of Rio de Janeiro (destination).
The idea is that this difference between the rates will be progressively directed to the destination state, which by 2019 should receive 100% of this amount.
Understanding everything about ICMS is important to stay up-to-date with tax authorities and establish more advantageous relationships with your business partners. Want to learn more? Then learn more now. How Supplier Relationships Can Help You Buy Efficiently!
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