Interstate ICMS taxation and the adoption of the destination principle

Abstract

This article studies how ICMS revenue due to interstate operations is distributed among the states of the Federation. Part of the tax charges occurs in the state of origin and part in the state of destination. The article assesses the financial impact that the adoption of the destination principle in interstate operations has on the total ICMS revenue in the state of Rio Grande do Norte. Using values referred to Rio Grande do Norte¿s interstate commercial trade balance, it also studies the characteristics of the current system, emphasizing that revenue distribution based on the differentiation of interstate aliquots deepens regional income inequities in the country. The study used a model that simulates tax collection in the state of destination. The results show that there are significant revenue gains for the state of Rio Grande do Norte, concluding that, by itself, the effect of the adoption of the destination principle in interstate operations raises the collection of this tax for the state.