Energy cost and increase in ICMS (Brazilian VAT)
A list of Brazilian states announced that, for 2024, they have already increased the ICMS rate to face the recently approved changes – “tax package”.
In principle, this is about a “small” increase, around 2%.
What will be the real impact?
ICMS is charged “inside”. Suppose that the ICMS of a state is 20%.
Simply put, the taxpayer needs to calculate the amount of taxes payable using the expression 1/(1-ICMS).
Thus, in the case under consideration it would be 1/(1-0.2) = 1.25. In other words, the price of a product needs to be multiplied by 1.25 so that you pay the 20% “inside”. In other words, the tax is actually 25%.
When the additional 2% is included, the result is 1/(1-0.22) = 1.28. In other words, the tax is 28%.
All this to get to the obvious. The increase in the tax burden will be very well perceived. From 25% to 28%.
