São Paulo's Tip Tax Sparks Controversy Among Bar and Restaurant Federation

Federation Challenges State's Tip Taxation

The Federação de Hotéis, Restaurantes e Bares do Estado de São Paulo (Fhoresp), a prominent federation representing the hospitality sector in São Paulo, Brazil, has voiced strong opposition to the state's taxation of tips. The entity has labeled the Imposto sobre Circulação de Mercadorias e Serviços (ICMS) levied on gratuities exceeding 10% of a customer's bill as 'arbitrary' and 'unjust', arguing it unfairly penalizes workers.

In response, the Secretaria da Fazenda e Planejamento do estado de São Paulo has affirmed that the rule governing this taxation has been in effect since 2012, established by Decreto 58.375/2012, and has not undergone changes.

The Discrepancy: State Decree vs. Federal Law

The core of the controversy lies in the application of a state decree amidst a federal law. While the federal Lei da Gorjeta (Law No. 13.419/2017) stipulates that voluntarily given tips are exempt from taxes, São Paulo's state decree mandates a 4% ICMS tax on any portion of the tip that surpasses 10% of the total bill.

Fhoresp contends that tips are 'bonifications for good services rendered' and should not be considered revenue for the establishment, thus making their taxation 'absurd' and 'inhumane'. The federation highlights that the 2017 federal law integrated tips into employees' remuneration, requiring their registration in payslips for social security and income tax purposes.

Industry's Adaptation and Current Impact

Following the 2017 federal legislation, many establishments in São Paulo increased their suggested service charges to 12%, 13%, or even 15%. This adjustment was made to compensate workers for the new social charges and income tax declarations resulting from tips being incorporated into their formal remuneration, aiming to prevent a reduction in their net earnings.

Fhoresp argues that taxing this difference, which was intended as a compensatory measure for employees, is 'wrong' and 'penalizes the worker' directly. The state government, however, has recently intensified its fiscalization efforts, leading to increased scrutiny and autuations against establishments.

Official Actions and Ongoing Dialogue

In an effort to resolve the issue, Fhoresp has formally submitted an official letter to Governor Tarcísio de Freitas and the Secretary of State for Finance and Planning, Samuel Kinoshita, urging a review of the taxation policy. Additionally, the federation is engaging with the Conselho Nacional de Política Fazendária (Confaz), which includes representatives from all Brazilian states' finance secretariats, to advocate for nationwide exemption regulation.

The Secretary of Finance and Planning has acknowledged receipt of Fhoresp's request, stating that the plea will be 'analyzed considering all applicable rules'. The government maintains that while the rule itself has not changed, the reinforcement of fiscalization aims to ensure compliance with the existing norm.