Exemption from the basic basket costs R$ 34.7 billion and can be more focused, says secretary – 08/21/2023 – Market

Conceived as a policy to make food and essential items cheaper for low-income families, the exemption of federal taxes on the basic food basket provides an average reduction of 5% in product prices, at a cost of R$ 34.7 billion for the Union , in current values.

Although its impact is relevant in the pocket of the most vulnerable population, the government’s diagnosis is that the measure can be more focused, says the Secretary for Monitoring and Evaluation of Public Policies of the Ministry of Planning, Sergio Firpo.

The data make up one of the bulletins that will be released by the agency this Tuesday (22), during the 1st Seminar on Evaluation and Improvement of Public Spending, promoted in partnership with the IDB (Inter-American Development Bank). The document was forwarded to Sheet.

The focus of this issue is the first phase of the Tax Reform, which deals with taxation on consumption. The PEC (proposed amendment to the Constitution) approved in the Chamber of Deputies provides for the creation of a national basic basket, which will be fully exempt from new taxes. The text is still pending in the Senate.

The definition of the contemplated items will still depend on regulation, at a later stage after the conclusion of the PEC vote. Even so, the government fears that the list of products will become too long, which would make the benefit less focused and could burden other sectors of the economy with a higher tax burden.

The current design of the exemption of the basic food basket has been in force since 2013. At the time, the then government Dilma Rousseff (PT) zeroed the rates of PIS/Cofins and IPI (Tax on Industrialized Products) levied on foods such as meat, fish, coffee, sugar, soybean oil, butter and margarine, as well as toiletries such as soap, toilet paper and toothpaste. Other products, such as bread, milk, rice and beans, were already exempt.

The problem identified over the years is that, by including the “meat” category in the basic basket, the government extended the benefit both to second-rate meat, consumed by lower-income families, and to nobler cuts, such as filet mignon and picanha, usually acquired by those with higher salaries.

In the case of fish, the registration code of the most popular ones and the one that identifies roe (a delicacy) or salmon start with the same digits. Therefore, there is no way to isolate one or the other to apply the exemption.

Past governments considered restricting the scope of the policy, but ran into fears of price increases on shelves and the negative political repercussions that such a decision would have on the population.

In the Tax Reform, the war of narratives around whether or not to increase food prices mobilized entities, parliamentarians and created a political problem for the government. The rapporteur’s solution, Deputy Aguinaldo Ribeiro (PP-PB), was to foresee in the text the total exemption of the basic food basket.

The advance in the discussion of the PEC is seen as an opportunity to resume the debate around the theme, based on the diagnosis of possible improvements in the policy.

“The exemption is not inefficient, it has important impacts on the poorest population, basically because consumption decreases with income, especially with food. So, when it is exempted, it favors the consumption of the poorest. The rich benefit too, but, in the distributive aspect, it [o benefício] is progressive”, says Firpo.

Data show that the poorest spend almost 30% of their income on food, while the richest allocate a smaller percentage, close to 10%.

Even so, the secretary claims that the policy can be improved in terms of targeting. For this, you need to know what your main objective is. He cites examples of goals and solutions that could be adopted for each of them.

To serve the poorest, the government could exempt fewer products and concentrate resources on “cashback”, a mechanism for refunding taxes paid by families that meet certain criteria (such as being on a low income). The PEC already provides for this possibility, although there is still not enough clarity on how the system would be put into practice.

To encourage healthier eating, regardless of family income, the government could exempt products with this profile and exclude ultra-processed foods, harmful to health, from the basic basket.

Today, five categories reached by exemption include ultra-processed foods, including margarine and compound preparations for non-alcoholic beverages —for example, soft drinks.

“There are a series of discussions, it depends a lot on the objective of the policy. Should ultra-processed products be in that basket? Is the objective to reduce food insecurity? A total exemption of products is not focusing on those most likely to be food insecure”, says Firpo.

According to him, a more focused policy consequently generates greater efficiency in the use of public resources. “We have to understand why we are going to create this exception [ao pagamento de tributos]”, it says.

Simulations already carried out by Executive technicians show that the end of the exemption, accompanied by a general reduction of 1.5 percentage points in the PIS/Cofins rates on all products, would compensate for the loss of family income, without boosting inflation or harming the economic activity.

Any negative impacts on the purchasing power of the poorest population could also be offset by an increase in cash transfers, focused on the most vulnerable families.

“The combination of reducing PIS/Confins rates for all products with an increase in income transfers, therefore, could bring gains in economic efficiency and reduce inequalities, in addition to providing more transparency to the public budget by explaining who are the main beneficiaries for these measures”, says the document.

The initiative to launch the bulletins seeks to disseminate the results of studies already carried out within the scope of the CMAP (Council for Monitoring and Evaluation of Public Policies) in recent years.

“We want to contribute to the current debate, which often lacks information on the benefits generated by public policies”, says Firpo.

“Many have discussed the value of the new rates, the impact of sectoral exceptions, but little has been discussed about the impact beyond the tax. We have an idea of ​​the cost, but we are not clear about the benefits, and we want to contribute to this debate more specific,” he adds.