Consultant: Tax reform reduces the price of the basic food basket – 07/04/2023 – Market

The proposed tax reform provides for a reduced rate of 50% for food and other items in the basic food basket, which may contribute to a 1.7% reduction in consumer spending on these products.

The calculation was made by the lawyer, economist and World Bank consultant Eduardo Fleury. He produced a similar study for the multilateral institution a few years ago. Now, he updated the calculations based on the new proposal and used the same methodology.

He considers as a base a possible general rate of 25% for the new taxes on consumption, the federal CBS plus the IBS of states and municipalities. With this, the tax on food would be 12.5%.

The price of proteins, such as beef, would fall by 3%. There would also be decrease for dairy products (-0.9%) and, mainly, hygiene products (-17.2%). The prices of flour and pasta and products such as coffee, sugar and soy oil would remain virtually unchanged.

On the other hand, there would be an increase of 7.9% in the final price of eggs, UHT milk, rice and beans. It is precisely the four products in the basket that today have the lowest tax burden (3.83%). The reform provides for the return of part of the new taxes (cashback) to offset the encumbrance of some goods and services for some consumers.

“In order to determine the impact of the reduced rate on the prices of basic basket products, we used the same methodology applied in the research carried out by the World Bank that resulted in the document “Indirect Tax Incidence in Brazil Assessing the Distributional Effects of Potential Tax Reforms”. original study was carried out by Fleury together with researchers Gabriel Lara Ibarra and
Rafael Macedo Rubiao.

Abras (Brazilian Association of Supermarkets) presented last Saturday (1st) to the Minister of Finance, Fernando Haddad, a study in which it states that the current proposal for tax reform may increase taxes on the basic food basket by 60%, on average, in Brazil.

The extraordinary secretary for Tax Reform at the Ministry of Finance, Bernard Appy, who also participated in the meeting, refuted the calculation and stated that the number presented by Abras “disinforms more than it informs”, as it does not consider the effects of cost reduction and recovery of credit that supermarkets can have with the reform.

The new calculation presented by Fleury shows that even a product with a load greater than 12.25% in the current system, as is the case of 14.4% on beef, pork and poultry, may have a tax reduction with the new collection method, which provides for the generation of tax credits paid on the acquisition of inputs.