CCIF talks about 8 sensitive points for agribusiness in the tax reform – 04/13/2023 – What tax is this

The agribusiness sector, through the FPA (Parliamentary Front of Agribusiness) and the CNA (Confederation of Agriculture and Livestock of Brazil), listed eight points in which the sector is against the proposed Tax Reform. Each of the mentioned points will be analyzed below.

It will be demonstrated that, to a large extent, the sector’s reticence regarding the reform is due to the fear that the new tax system will inherit the vices of the current one. To overcome this view, it is necessary to understand that this is a new taxation model based on the best international practices and adapted to the Brazilian federative system.

It is important to highlight that the reform has an estimated positive impact on the economy of more than 20% over 15 years and that the estimates of growth in the added value of agribusiness with the reform are 18.59%.

point-to-point clarification

1) Scope of the concept of taxpayer

The sector alleges that it is not a direct contributor to the taxes to be replaced.

clarification
In the IBS (tax on goods and services foreseen in the reform) the taxpayer is the final consumer. Companies and producers are taxable persons who collect tax along the chain.

At IBS, small companies and small rural producers can choose to enter the normal debit and credit tax regime or to stay out. If they choose to stay out, their sales will be exempt from the tax, therefore, there will be no collection or generation of credit for the acquirer in the case of B2B operations.

In this way, the small producer who sells directly to the final consumer (B2C) has an incentive not to enter the IBS model. The small producer who is in the middle of the chain, that is, does not sell directly to the final consumer, but to a medium or large company, has an incentive to pay the IBS, since all the tax collected on its sale will be credited to the purchaser , which means that in practice the operation would be equivalent to a zero rate.

How is the international experience?
The most recent IVAs adopt the normal taxation regime, that is, both rural producers, agro-processing companies and food traders, that is, the entire agribusiness production chain, are subject to the current IBS rate if the your billing exceeds the exemption threshold for small businesses (threshold). In this way, the assessment of the tax to be collected along the production chain is done by comparing tax debits and credits.

Small farmers are always allowed to join the IBS system, in which case they can take advantage of the credits for their purchases of inputs and pass on credit to their buyers (when taxpayers).

2) Presumed Credit

The sector wants to maintain this tax treatment at the IBS for the purchaser of agricultural production.

clarification
The purpose of the presumed credit is to eliminate the accumulation of taxes in the production chain, however, it does so in an inefficient way. With the technology that exists today, which facilitates the debit and credit system, it is possible to completely eliminate the accumulation of production chains.

The presumed credit adds complexity to the model. This instrument is common in ancient IVAs, but not in modern ones. It enables companies that add value to in natura foods to have VAT credits from the previous stages at a pre-fixed rate that is an estimated average of the incidence of the tax along each production chain. Therefore, it must be differentiated by categories, according to the productive activities (livestock, agriculture, fish farming, etc.) because each segment uses different inputs and in different amounts.

Fixing the presumed credit turns out to be arbitrary, in addition to causing a high cost of compliance and stimulating litigation, because the various production chains now have different presumed credit rates. According to Cnossen (2018), presumed credit made sense in the past, when there was no computerized taxation system, but currently corresponds to an arbitrary form of compensation.

3) No tax incidence on agricultural inputs

The sector defends this differentiated taxation to guarantee international competitiveness.

clarification
The IBS model guarantees that the tax is non-cumulative and that accumulated credits are returned quickly. In addition, the tax follows the destination principle, normally taxing imports and exempting exports. In fact, the competitiveness of national agriculture would be increased, as all tax cumulativeness along the chain would be eliminated, with the return of credits referring to all inputs consumed, electricity, investments in machinery and equipment, consulting services, etc., regardless of having been incorporated directly into the product.

We understand that the sector is suspicious that accumulated credits will be returned quickly, as in the current model this does not occur. It is precisely because of the distortions of the current model that we need to carry out the Tax Reform by implementing a new system that does not have these vices.

At IBS, tax collection will be centralized/shared by the IBS Federative Council (CF-IBS) and the resources will only be allocated to federative entities if the operation is for the final consumer. The values ​​of the companies’ credits will be in the CF-IBS cashier ready to be returned to the companies when requested. That is, they will not enter the budget of any entity or compete with another allocative priority.

4) Encumbrance of the basic food basket

The sector is against encumbering the basic food basket.

clarification
The uniform rate engenders several advantages to the tax system, since it is the simplest, with less litigation, lower compliance costs and more transparent to the consumer. Therefore, the vast majority of modern IVAs (implemented since the 1980s) have a single positive rate.

The selectivity of products in the basic basket was, in the past, the possible way to compensate low-income families for the regressive nature of the consumption tax. Its reason for existing would be to induce a decrease in food prices which, in relative terms, burden low-income families more.

However, the decrease in taxation on food is not usually fully passed on to consumer prices, being incorporated as higher profit margins for distributors and resellers who have greater market power. In addition, exemption from the basic food basket brings distortions and complexity to the tax system.

Additionally, it is a very costly benefit for the public purse, which fails to collect significant revenue and which needs to be compensated by raising the average tax rate. Finally, it is a poorly focused benefit, as wealthier households consume more food (and more expensive items) in absolute terms.

The best solution, which only became possible thanks to technological advances, is to relieve low-income families. In this system, families belonging to the Single Registry of social benefits, or even a larger portion of the population, would receive via financial transfer the return of the tax levied on their acquisitions, limited to a value to not encourage fraud. It would be a kind of tax cashback. It is important to highlight that as the poorest families have a high share of their expenditures on food, an increase in their income (due to cashback) would have a positive impact on the demand for basic goods.

5) Fast and effective reimbursement of credits

The sector wants to ensure, with the reform, the quick and efficient reimbursement of tax credits in all calculations.

clarification
We are in complete agreement with this position. And the tax administration model developed in the PEC 110 report has an institutional design that guarantees this return.

6) Proper treatment of cooperativism

clarification
As already mentioned, IBS will be a tax that only burdens the final consumer. Its objective is to be neutral, in order to encourage the organization of the productive sector as if it were organized in the absence of any tribute.

7) Non-incidence of the IS (Selective Tax, also created by the reform) on the food production chain

The sector does not want the selective tax to be levied on food.

clarification
The excise tax should focus on items that you want to discourage, that is, with a negative impact on health and the environment. In principle, it will focus on tobacco, fossil fuels and alcoholic beverages.

8) Adequate taxation of biofuels

The sector argues that taxation should encourage the use of biofuels.

clarification
Biofuels will be treated normally at IBS, generating credits for the purchaser when due and burdening the final consumer. Fossil fuels will have the same treatment, however, the selective tax should also apply in order to discourage their consumption, indirectly stimulating biofuels.