Opposition sees a trap in the selective tax of the tax reform

In addition to the unification of taxes on consumption, the tax reform proposal supported by the government foresees the creation of a selective tax, which would have an extrafiscal nature and would be used to discourage the consumption of products that are harmful to health and the environment. Without a clear definition of which goods and services would fit the criteria, opponents see the risk of using the mechanism arbitrarily and increasing the tax burden.

“I read the preliminary text of the tax reform and I can say with absolute certainty: it is horrible. One of the absurdities is the ‘selective tax’, where the state will surcharge those products it deems to be harmful to health and the environment”, said federal deputy André Fernandes (PL-CE). “We need to discuss this issue.”

Former President Jair Bolsonaro (PL), one of the critics of the device, argues that the proposal should be overturned. “The PT ‘doctors’ decided, for the sake of our health and the planet, to charge us more taxes”, wrote on your social networks. “Meat (picanha), fossil fuels, soft drinks, alcoholic beverages, among others, would be surcharged.”

“From the above, the increase in the tax burden, now foreseen, will lead to a drop in productivity in the countryside, the closing of factories, less trade, more unemployment and inflation”, continued the former president. “To the center-right deputies/senators, who are the majority, without profound changes to the PEC, they will certainly shelve this terrible proposal by voting.”

The substitute for the proposed amendment to the Constitution (PEC) 45/2019 presented by federal deputy Aguinaldo Ribeiro (PP-PB) on the 22nd does not detail the products on which the excise tax would apply, it only indicates that the definition must be made by law additional.

According to the text, it would be up to the Union to institute taxes on the “production, sale or importation of goods and services harmful to health or the environment, under the terms of the law”. The Executive would still be able to change the rates of the new tax.

Still according to the wording of the amendment, the selective tax would not be levied on exports and would be part of the calculation base for the Value Added Tax (VAT), resulting from the unification of IPI, PIS, Cofins, ICMS and ISS in the reform.

Tax attorney Dylliardi Alessi, from Peccinin Advocacia, explains that it is customary for the constitutional text to bring general rules, and for more specific details to be regulated by law.

“Establishing all goods and services right away on a comprehensive list in the Constitution does not seem to me to be the best way out”, he says. “It is clear that, on the other hand, there is concern on the part of some sectors of taxation on products that should not necessarily exist.”

The discussion about the creation of a new tax without information about which markets would be affected is the central point of the proposal’s critics.

“What if they want to surcharge agricultural defensives?”, questions economist

“The selective tax makes room for us to tax everything we deem harmful to health or the environment. Imagine if someone thinks that agricultural pesticides should be overtaxed to protect the environment?”, asks economist Erik Figueiredo, who presided over the Institute of Research and Applied Economics (Ipea) in 2022 and is now executive director of the Mauro Borges Institute of Statistics and Socioeconomic Studies (IMB), linked to the government of Goiás.

For him, this fear would be removed if a draft of the supplementary law that will regulate the subject was presented to the PEC. The document would also help to better assess the viability of creating a VAT by giving access, for example, to the new tax rates.

“It is natural that a PEC does not deal with rates, but all discussions so far are based on the belief that the rate [do IVA] will be close to 25%. This rate, however, does not consider the huge exceptions contained in the substitute. If it reaches 30%, we will have the highest VAT in the world, and the worsening of losses for large sectors of the economy”, he says.

“Likewise, what would be the activities that are harmful to health and the environment? That is very dangerous. Without a preview of the complementary law, there will not be a transparent discussion, ”he says. “These two themes I mentioned are not marginal. They are central to the proposal.”

Deputies discussed selective tax on ultra-processed foods and weapons

In a preliminary report produced by the working group (GT) on the National Tax System of the Chamber of Deputies, deputy Aguinaldo Ribeiro (PP-PB) defended that the text of the PEC be approved with the “negative externalities” that it is intended to combat with the selective tax, without restricting the list of products or services.

“Due to the complexity of the subject, the guideline is to keep the wording broad and transfer the specifics to the infraconstitutional discussion”, he wrote. “In this way, the various sectors will have time to clarify their particularities, and the legislation may be amended according to the evolution of society’s consumption”, he justified.

During debates on the tax, there were suggestions of its application on cigarettes, alcoholic beverages, ultra-processed foods, weapons and products that emit carbon, which would include fossil fuels.

WG members agreed that Brazil should follow international discussions regarding environmental and carbon taxation. Federal deputy Tabata Amaral (PSB-SP) recommended that the country pay attention to the most recent international guidelines on border adjustments in the European community.

On Tuesday (27), the Minister of Finance, Fernando Haddad, defended the use of the selective tax to encourage the use of sustainable energy sources. The statement was given at the opening of an event by the Climate Investment Funds (CIF), in Brasília.

“The tax reform creates a selective tax, which will make a difference in terms of the environment and public health, as it will be a modern tax,” he said. “Selective tax and carbon credit are a virtuous combination of instruments that favor this transition”, he added.

Tributarist sees risk that tax will serve more to collect than to discourage consumption

Luciana Gualda, tax lawyer and partner at Montezuma & Conde Advogados Associados, recalls that today the Tax on Industrialized Products (IPI) fulfills the role of regulating markets through surcharges aimed at discouraging the consumption of products such as cigarettes and alcoholic beverages.

She is concerned, however, with the possibility of using the selective tax for collection purposes. “Which rule will be used to define what is harmful to health?”, She asks. “There are several countries that surcharge products that contain sugar, but it’s no use taxing chocolate, for example, and forgetting about others that have the same substance”, she says.

In addition, the tax specialist points out that industrialized products are generally cheaper than organic ones, for example, and, therefore, consumed by lower-income consumers. “I think the big problem is how to know that this taxation will achieve its purpose and will not be just one more instrument to increase revenue to cover public expenses.”

For her, there are alternative ways to discourage the consumption of certain products beyond the tax route. As an example, she mentions the drop in nicotine use after restrictions on cigarette advertising and campaigns by the Ministry of Health on the harmful effects of smoking.

“Personally, I think there is this training issue, and not just trying to do this through taxation. This solution ends up having more of a collection nature, opening a gap to collect more, to face all the public expenses on which there is no brake.”