Gap for new tax may raise food prices – 07/12/2023 – Market

The state contribution, a new tax inserted at the last minute in the text of the Tax Reform in the Chamber, could raise the price of products on the domestic market, affecting the cost of transport, industrial items, but especially food, warn tax experts.

Contradictorily, while the reform proposes zero taxation for the basic food basket, the contribution may raise the price of items such as rice, beans, coffee, tomatoes, fruits, beef, chicken and pork, in addition to soy and corn, sources of oils vegetables and essential ingredients of various products, such as animal feed.

According to the wording of the text, there will be permission to tax primary and semi-finished products as an alternative to maintaining the financing of state funds created until April 30 of this year. The contribution could be applied until 2043.

The possibility of creating these funds was established in 2016 by Confaz (National Council for Finance Policy). The form of collection for the financing is already questioned in the STF (Federal Supreme Court). So far, seven ADIs (direct actions of unconstitutionality) have already been filed.

These funds are spread across the country, according to a survey carried out by three firms: Okuma Advogados, Silveira Athias Associados and Donas Guimarães Falek Advogados.

This preliminary study, carried out in January and February, identified 17 such funds —16 already in operation in the states of Acre, Alagoas, Bahia, Ceará, Espírito Santo, Goiás, Maranhão, Mato Grosso, Mato Grosso do Sul, Paraíba, Pernambuco, Piauí, Rio de Janeiro, Rio Grande do Norte, Sergipe and Tocantins.

The one in Paraná was approved and is in the implementation phase. There is a fund under discussion in the Legislative Assembly of Rio Grande do Sul.

Tax specialists believe that, due to the wording of the text, it is not possible to know the real scope of the contribution, but the proposal suggests that it is an additional tax, a kind of new ICMS, which will be added to the taxes proposed in the reform —the state IBS (Tax on Goods and Services) and the federal CBS (Social Contribution on Goods and Services).

As each state would have autonomy to define the charge, the contribution could be applied in the domestic market, but also on exports —which is vetoed for the other taxes created. As the price of many commodities is quoted on the stock exchange, the tendency is for higher taxation to be concentrated in the domestic market.

“This contribution will be an escape valve for states to escape the constraints of the IBS”, says lawyer Fernando Scaff, partner at Silveira Athias and professor of financial law at the Faculty of Law of USP (University of São Paulo).

CONTEMPLATED STATES LEAD FOOD PRODUCTION

Taxes have weight in the final price of any product, explains economist Andre Braz, coordinator of the Consumer Price Index of FGV Ibre (Brazilian Institute of Economics of the Getulio Vargas Foundation).

“Every tax increase hits the shelf, and it hits fast, because a productive chain hardly absorbs tax increases”, he says.

The list of production and export of commodities of the states with funds gives an idea of ​​what can be taxed more, if the contribution is maintained in the Senate.

The cultivation of soy and corn is strong in nine of these states, with emphasis on Mato Grosso, leader in the production not only of this grain, but also of corn and beef. The state has the largest cattle herd in the country.

Paraná, on the other hand, is responsible for a third of the production of chicken and has the vice-leadership in pork.

Espírito Santo is the second largest coffee producer in Brazil, concentrating the conilon type planting —with greater productivity— and selling especially to the domestic market.

Pernambuco, Bahia, Ceará and Rio Grande do Norte are the main producers and exporters of fruit. On the list are mango, grape and melon, just to name a few examples.

Eight states concentrate bean production, and six of them have funds. Paraná, Mato Grosso, Goiás, Bahia, Ceará and Pernambuco account for almost 60% of the national total.

Estimates for the next crop point out that Goiás will account for a third of tomato production. The State has advanced in agriculture, already disputing fifth place in the national ranking of grains.

The largest producer of rice and wheat is Rio Grande do Sul, which has not yet approved its fund. The states of Tocantins and Maranhão also stand out in the cultivation of these items.

Lawyer Thales Falek, who worked on the survey, says that it will be necessary to map the country to consolidate the total number of funds. For him, regardless of what is posted, all states will work to have access to the new contribution, if it is validated.

Minas Gerais, for example, is not included in the initial survey. But, in an interview with GloboNews this Wednesday (12), Governor Romeu Zema said he was against increasing the tax burden, although he supports alternatives for states to be able to tax mineral and agribusiness resources.

“These funds are part of a group that already had a source of income linked to some tax benefit with ICMS”, says Falek.

“It is not possible to say that only these will benefit. It will be necessary to go through a fine-tooth comb to measure the total that already exists and wait for the reaction of other states.”

FUNDS ARE QUESTIONED AT THE STF

Tax experts believe that the proposed contribution violates the principles of taxation and the guidelines of the Tax Reform.

One of the reasons is that the new contribution would maintain the charge at origin, when the country is changing the charge to the destination. Furthermore, it would be a new tribute, when the effort is to reduce existing ones.

The Constitution today prohibits states from creating contributions, which are taxes with a specific destination. As the collection of the fund has a specific destination, the ADIs in the STF resort to this constitutional device to request the suspension of the collection.

Okuma explains that most states determine that the company interested in having ICMS tax benefits needs to pay 10% of that benefit to the fund.

“As these funds are based on the same agreement, the feature is similar, but always with particularities, because the states understand that they have competence to make legislation as they wish”, explains lawyer Alessandra Okuma, specialist in taxation.

Goiás, for example, charges up to 1.65% on the total value of the operation with goods specified in the ICMS legislation or per unit of measurement adopted in marketing. Tocantins charges on the value of the invoice.

The reading among the lawyers is that the states took advantage of the reform to constitutionalize what was being questioned.

“The discussion in the STF may change if this device is approved, because it seeks to recognize the tax nature of these contributions that already exist and tries to validate them”, says Okuma. “In my opinion, the governors literally assumed that they are already charging tribute, which they could not.”

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WHAT THE TEXT THAT PASSED IN THE CHAMBER SAYS

The wording on the new tax says:

“The States and the Federal District may institute a contribution on primary and semi-finished products, produced in their respective territories, for investment in infrastructure and housing works, replacing the contribution to state funds, established as a condition for the application of deferral, special regime or other differentiated treatment, related to the tax referred to in art. 155, II, of the Federal Constitution, provided for in the respective state legislation on April 30, 2023.
Single paragraph.
The provisions of this article apply until December 31, 2043.”

In the Constitution, the aforementioned article determines:

Art. 155. It is incumbent upon the States and the Federal District to institute taxes on:

II – operations related to the movement of goods and the provision of interstate and intercity transport and communication services, even if the operations and services begin abroad