The Presumed IBS Credit and the Risk to the Competitiveness of the Manaus Free Trade Zone Industries

By Ninfe Dantas and Carlos Costa, Partners in the Tax Area

PLP No. 68/24, which regulates the Tax Reform on Consumption, has already been approved by the House of Representatives and is now headed to the Federal Senate. With the elimination of COFINS, PIS/Pasep Contribution, ICMS, and IPI, the expectation is that the new taxes (CBS/IBS) will enable broad crediting, simplify fiscal and tax calculations, and end the ICMS fiscal war by ceasing the unilateral granting of tax benefits by states.

The Manaus Free Trade Zone (ZFM) is an exception to the general taxation rules in Brazil. The incentivized industries in this special area will continue to enjoy tax advantages to ensure their competitiveness and promote regional development. The ICMS tax incentives granted by the State of Amazonas, currently provided under State Law No. 2,826/03 and regulated by Decree No. 47,727, will gradually be replaced by the incentives under the Goods and Services Tax (IBS), as outlined in the complementary law derived from PLP No. 68/24.

Given the importance of the incentivized area, Constitutional Amendment No. 132/23 expressly establishes that the new tax system will preserve the “competitive differential guaranteed to the Manaus Free Trade Zone.” Thus, it is safe to affirm that ZFM industries should remain in an equally privileged position, equivalent to the benefits of the taxes being eliminated (PIS/COFINS and ICMS).

To replace the stimulus credit under Law No. 2,826/03, PLP No. 68/24 proposed a presumed IBS credit. According to Article 446, §1, this credit will be calculated by applying a fraction of 2/3 (two-thirds) to the result of the pre-established percentage (55, 75, 90.25, or 100%), based on the nature of the goods, to the amount of tax assessed.

The above percentages apply, respectively, to final goods, capital goods, intermediary goods, and IT goods. Despite the complexity of the calculation, the presumed credit incentive proposed for IBS clearly falls short of the current incentives for the products mentioned, and, more importantly, it does not reflect the additional stimulus credit provided for in Article 13, §13 of Law No. 2,826/03, which establishes a 100% rate for various products, as long as the additional credit is necessary to maintain the competitiveness of ZFM industries.

For clarification, some products classified as “final goods – consumer goods” not only benefit from the 55% Stimulus Credit but also receive an additional incentive, reaching 100% credit in interstate sales, provided they meet the requirements set forth in the legislation.

Examples of products benefiting from this additional stimulus credit (up to 100%) include air conditioners, white goods, clothing, and bicycles. With the implementation of IBS, the new state tax, incentivized industries in the region will suffer a significant reduction in their tax incentives, as the presumed credit will decrease from 100% to 2/3 (two-thirds) of 55%, in the case of products classified as “consumer goods.”

This conclusion conflicts with the commitment of Article 92-B of the ADCT, introduced by Constitutional Amendment No. 132/23, which ensures the “competitive differential guaranteed to the Manaus Free Trade Zone.” Therefore, there is an expectation that the Federal Senate will correct this distortion by expressly providing for an additional presumed credit, now under IBS, whenever necessary to ensure the competitiveness of industries in the region.