Basic reform basket does not differentiate rich from poor – 07/25/2023 – Market

Provided for in the Tax Reform approved by the Chamber of Deputies, the creation of a national basic basket with zero taxation is the target of criticism from a portion of analysts for signaling the same treatment to rich and poor, exempting products, and not consumers with lower income.

In addition, the definition of foods that should or should not be on the list is still uncertain. The composition of the basket should only be fixed later, by means of a complementary law, which is seen as a challenge for further discussions.

“If you establish an exemption for meat, for example, that which is consumed by the poorest and that which is consumed by the richest will not be taxed. This causes the government to lose a lot of money that could be allocated exclusively to the poorest”, says researcher Leonel Pessôa, from the fiscal studies nucleus at FGV Direito SP.

“If oranges are tax-exempt, another question may arise: will orange juice also be exempt or not? These are situations that remain in a limit zone. You don’t know whether or not they fit into what the norm is exempting,” he says.

In the previous version of the reform, basic basket goods would be subject to taxation equivalent to 50% of the general rate to be applied to goods and services in Brazil – this percentage has not yet been defined.

In return, the return of part of the collection to consumers in the form of cashback was under analysis. The intention would be to transfer a larger share to the poorest.

The idea, however, ran into the fear of an increase in the tax burden compared to the current situation — a concern that was denied by the government.

Currently, basic basket products already have federal tax exemptions and have different regimes in the states, which can zero or reduce ICMS rates.

After the pressure, the text had changes and began to provide for the national basic basket zeroed. The reform was forwarded to the Senate for consideration and is still subject to further changes.

For Pessôa, the most appropriate model would be cashback. In this sense, the researcher cites the example of Rio Grande do Sul, which already adopts a tax refund system.

The Tax Reform still provides for cashback for different items, but the details need to be defined. In the case of the basic basket, as the forecast is for zero rates, the devolution would lose its raison d’être, as there is no tribute to be refunded, according to specialists.

The idea of ​​the basic basket emerged in the country through a decree in 1938, in the Getúlio Vargas era. Over time, the composition of the list of goods has changed from state to state, going beyond food.

Rio de Janeiro, for example, included insect repellent and sunscreen in the differentiated treatment. In Minas Gerais, there is the presence of a famous item of local cuisine: cheese bread.

For the chief economist of the Warren Rena brokerage, Felipe Salto, the definition of a single basic basket in the country, by complementary law, is a “good idea”.

However, according to him, care is needed to avoid that the measure contemplates “an infinity of items”, which would generate “worrisome” tax effects on the collection.

The economist also considers that zeroing the rates worsened the reform. “It is the typical case in which one wanted to contemplate the criticisms of specific sectors and then the text was incongruous, to say the least. The Senate will have a huge job to deal with this and other points”, says Salto, former Secretary of State for Finance and Planning of São Paulo.

In his view, the idea of ​​cashback on the basket was positive as it allowed the return of resources. According to the economist, the Bolsa Família registration could help in the elaboration of this model for the poorest.

“What is consensus, in my view, among economists: it makes no sense to exempt basic products for those who are not poor. You and I buy a package of pasta and we have the same indirect benefit as a person with a fraction of our income. It is unfair and regressive”, he evaluates.

Economist Sergio Gobetti goes along the same lines. According to the researcher, who currently works at the Treasury Department of Rio Grande do Sul, cashback would be a more efficient mechanism to mitigate regression – characteristic of a system that collects proportionally more from those who earn less.

For Gobetti, the exemption “weakens” the devolution model still foreseen in the reform and tends to put pressure on the reference rate on goods and services that will not have differentiated treatment.

He also sees a “complicated discussion” for the definition of foods that should or should not enter the basket. “The exemption exceeded the bill”, says Gobetti, who considers the reform “extremely positive” in general terms, despite the considerations on the basket.

“There is a taboo, people are suspicious of tax refund programs. Due to this confusion, they prefer to have a reduced rate [zerada, no caso da cesta]. I think the distrust is not justified. We have the example of Rio Grande do Sul, which puts into practice the refund of ICMS for low income”, he adds.

The initial reform proposal for the basic food basket became the target of complaints from productive segments during debates in the Chamber.

Earlier this month, Abras (Associação Brasileira de Supermercados) presented a study in which it stated that the initial version, with a discount on the general rate of goods and services, could raise the taxation of the basket by 60%, on average, compared to the current situation.

The extraordinary secretary of Tax Reform at the Ministry of Finance, Bernard Appy, countered the criticism, saying that the number misinformed more than it informed, as it did not consider the effects of cost reduction and credit recovery that supermarkets could have with the reform.

Resetting is simpler, says professor

For André Parmo Folloni, dean of the Law School at PUCPR (Pontifical Catholic University of Paraná) and a researcher in the area of ​​taxation, the exemption from the basic food basket can be interpreted as a “simpler” way of preventing pressure on the prices of essential goods.

“If we think of an ideal cashback, which would individualize taxpayer by taxpayer by their financial capacity, this model could be fairer, but it is difficult to do that”, he says.

“Sometimes, it even gets a little counterproductive, because it is very expensive to do. Administration is costly. Between gains and losses, zeroing the rate on the basic food basket is a simpler measure”, he evaluates.

Economist Ana Luiza Neves de Holanda Barbosa, from Ipea (Institute of Applied Economic Research), states that a simple increase in the price of products, without any compensation measure or income transfer, would be negative in terms of well-being for the poorest.

Regarding the initial proposal to include a cashback on the basket, the researcher says that this is a policy that deserves further studies.

“I don’t know if the measure would be effective, because we would have to take into account several administrative factors and be based on what other countries are doing”, he points out.

In the economist’s view, the definition of a national basic food basket will face challenges such as reconciling the choice of products with recommendations from the public health area and regional differences.

“Brazil is continental in size, there is no standard diet,” he says. “These are complex challenges, but, as the discussion is being quite broad, I think a reasonable consensus will be reached.”