(Recast with meeting outcome, Levy and state official comments)
By Alonso Soto
GOIANIA, Brazil, April 10 (Reuters) - Brazilian Finance Minister Joaquim Levy on Friday failed to convince all of the country’s states to unify an inter-state tax that he said is crucial to reduce legal uncertainties and bolster investment.
Speaking after a meeting with the heads of finance of Brazil’s 27 states in the central city of Goiania, Levy said all but four states agreed to gradually unify the rate of the ICMS tax. The government needs the approval of all states to increase its chances of passing legislation that unifies the tax.
“I believe we made significant advances today, which gives us a base to continue,” Levy told reporters. “Resolving this issue is crucial for our economy to resume growth and is part of our efforts to put our finances back in order.”
During her first mandate, President Dilma Rousseff failed to pass an ICMS tax reform through Congress amid strong resistance from some states that feared losing tax revenues. Other states were also worried that a convergence would leave them without a key fiscal tool to attract companies.
This time around, a serious deterioration of states’ fiscal accounts prevented Levy from convincing Parana, Rio Grande do Norte, Pernambuco and Ceara to agree with the proposal.
Rousseff, who is also trying to balance the government’s depleted fiscal accounts, is pushing for a series of smaller reforms to spark business and breathe life into a once-booming economy. Latin America’s largest economy is expected to contract as much as 1 percent this year.
One of those reforms is the simplification of the tax system, which is considered one of the most complex in the world with a series of federal, state and municipal duties.
Levy said that the government would consider ways to compensate poorer states for an eventual loss of tax revenue.
The ICMS, which ranges from 7 percent to 25 percent, has been used as a tool by states to lure companies with tax exemptions in what has been dubbed locally as the “fiscal wars.” That practice has been challenged in several courts, raising legal uncertainty for businesses.
Brazil’s poorer states in the northeast are worried that a tax convergence could spark an exodus of investors to industrial hubs in the south.
“Some states want more assurances and a stronger commitment from the central government to create compensation funds,” said Renato Villela, the finance secretary of the state of Sao Paulo.
Last year, Brazilian states collected 429 billion reais($139.27 billion) in ICMS tax, according to data from the national council of state finance secretaries.
$1 = 3.0804 Brazilian reais Reporting by Alonso Soto; Editing by Chizu Nomiyama and Alan Crosby