Right to Deduct ICMS on the Purchase of Capital Goods and Fixed Assets

Non-cumulative Impact and Legislative Coherence

Abstract

This article addresses the regime of the Brazilian State Value Added Tax (ICMS) as a non-cumulative tax. In particular, the aim of the article is to analyze whether the taxpayer’s right to deduct input tax should entail a gross product, consumption or income type of value added tax. The first part of the article reviews fundamental concepts, defines ICMS as a non-cumulative tax and explains its main characteristics. The second part defends the position that, in light of its non-cumulative characteristic, ICMS should be construed as either a consumption or income type of value added tax. This conclusion follows from a purposive reading of the constitutional rule establishing that ICMS should be non-cumulative and from the legislator’s duty of coherence. In addition, it is shown that excessive restrictions to deductions of input tax may cause detrimental consequences to the production and consumption cycles.