staple foods up to 21% more expensive

Basic foodstuffs, currently exempt from taxes when leaving the rural property, will be up to 21% more expensive if they are forced to pay the Goods and Services Tax (IBS) – also called Value Added Tax (IVA) – at the gate. intended in the tax reform proposals adopted by the federal government in Congress.

In the Chamber’s PEC 45, a 25% rate is discussed for virtually all production chains, with few exceptions. In the Senate’s PEC 110, the standard rate and its exceptions would be defined later, by complementary law.

If passed on to the production chain, this increase in producer costs will mean additional inflation of 1% in up to one year, according to a study by the National Confederation of Agriculture and Livestock (CNA), based on a 25% rate.

The CNA calculations were presented this Tuesday (28) to the Working Group on Tax Reform in the Chamber of Deputies, which also heard industry representatives.

Among the foodstuffs that may suffer the greatest readjustments, in the event of a full pass-through of increased costs, are:

• dairy products (price increase of 21.3%);
• potato (21.6%);
• beans (19.6%);
• coffee (18.5%);
• soy and corn (16.2%); It is
• rice (12.7%).

For farmers, the reduction in gross margin could reach 94.3% in milk, which has profitability calculated in cents, and 65.3% in rice. In general terms, another study, carried out in 2019 by the Brazilian Institute of Planning and Taxation (IBPT), had already estimated an impact of 22.7% on the basic basket with the end of tax exemption.

“The question is whether the consumer is able to receive this cost increase. It will depend on the consumer’s income and the elasticity of demand. There are products that we know will pass this cost in full. But in others, the consumer does not accept it and will reduce consumption. An example is dairy. We know that, when the price goes up, the consumer does not incorporate this increase, it reduces consumption”, says Renato Conchon, coordinator of CNA’s Economic Nucleus.

Differentiated tax rate for agriculture is OECD standard

In defense of the exemption or at least a lower rate for agriculture, the CNA invokes a study by the Organization for Economic Cooperation and Development (OECD) that points to the importance of exemption from agriculture among its member countries. Out of 35, only four do not offer preferential treatment for food production: Chile, Denmark, Estonia and New Zealand.

“These are countries that basically have no agriculture. Chile exports ore, Denmark has oil and a lot of services. Estonia, to give you an idea, does not tax beer. Each country adapts according to its needs. But the fact is that the vast majority of countries have a differentiated taxation for agro. The United States, which does not have a value-added tax, but the ‘sale tax’, does not charge rural producers a tax on the export of soy, coffee, beef and chicken”, points out Conchon.

Responsible for 24.8% of the Brazilian Gross Domestic Product (GDP), for 23.9% of jobs and 47.6% of exports, agribusiness argues that the collection of taxes on its production chains reached the figure of R$ 460, 1 billion in 2020, equivalent to 19.3% of the total collected in the economy. It would be the sum of a series of taxes such as ITR, ICMS, IPI, PIS, Cofins and IR.

As for the allegation that it is the other links in the chain that collect taxes, and not the producer, Conchon counters: “When the rancher sells an ox to the slaughterhouse, for example, the purchasing agroindustry collects Funrural. But it deducts the producer tax. Who collected? The industry. Who paid? The producer, because he had a discount”.

FPA analyzes alternatives to the aggregate tax model

On the same day that agriculture presented its arguments for lower taxation, earlier, at a weekly lunch, the Parliamentary Front for Agriculture (FPA) received Senator Oriovisto Guimarães (Podemos-PR), author of PEC 46 of tax reform, which it would be an alternative to PECs 45 and 110, taken as a starting point by the Special Secretary for Tax Reform, Bernard Appy.

It’s a message from the agro caucus that the sector is still “dating” with models other than VAT and that the government needs to improve dialogue. “They said that I only criticized the government’s proposals, so I decided to embrace the Simplifica Já reform. A simple, streamlined reform that replaces 27 ICMS laws with one for the whole of Brazil. And it also creates a single ISS legislation, replacing more than 5 thousand”, argues Guimarães, in defense of his proposal.

In the view of the Ministry of Finance, one way that the government would have to compensate for the end of the exemption for basic basket products would be the institution of “cashback”. Or tax refund, in current account, for the poorest.

“Parliament is the one who will calibrate to whom you will return the tax. You can decide to return it to 30% or 70% of the population”, said Appy on the 8th, in a public hearing of the Tax Reform WG, in the Chamber.

The problem, says Cochon, from the CNA, is the lack of definition of the parameters. “The secretary says that it is Congress that will decide. Now, as Congress is going to assume the responsibility of increasing the budget transfer to 20 million families [do Bolsa Família] or 81 million people from the federal government’s single register? What is the value of it? Today we are discussing hypotheses”, ponders the agriculture representative.

Mechanisms to avoid tax on tax

Tax expert Rodrigo Borba, from Araúz Advogados, observes that a series of exemptions and benefits currently granted to agribusiness are just mechanisms to avoid the cascading effect of charging tax on tax.

According to the PEC 45 proposal, for example, the presumed PIS/Cofins credit that the industry acquires when buying from a rural producer, an individual, would end. “It seems obvious that if the industry does not have credit to buy from individuals, it will buy from legal entities. You can get an idea of ​​the social problem that will be caused, given that 77% of livestock establishments in the country are family farms” , points out Borba.

“PEC 45 is in the minds of parliamentarians as the simplest to implement, but it is the most costly for the agricultural sector. It equates all merchandise and essential goods with superfluous ones. Cigarettes, for example, will have the same tax burden electricity or rice”, he warns.

The premises of the agricultural sector for tax reform, according to CNA

1. Differentiated and favored treatment for agribusiness
Taxing luxury products and food at the same rate will harm the income of the Brazilian middle class.

2. Maintenance of the sectoral and global tax burden
Displacement of the tax burden will make agricultural chains unfeasible, generating social and economic losses.

3. Individuals are not required to join the IBS, but have the option to join
The inclusion of individuals as taxpayers will increase bureaucracy and costs for micro and small rural entrepreneurs.

4. Excise tax should not apply to food or inputs
It should not focus on food and inputs of any kind.

5. Maintenance of the exemption of the basic food basket
The items that make up the basic basket can be reassessed, but the exemption must be maintained. The proposed cashback amount should not be enough to increase consumption by low-income families; moreover, the middle class will be penalized.

6. Greater clarity for the reimbursement of accumulated credits
Current credits: when can they be appropriated? New regime credits: when will they be returned?

7. Ensure the application of adequate tax treatment to cooperatives
Clarification is needed for the non-incidence of taxes on the cooperative, but on the cooperative member, where wealth is effectively fixed.

8. Differentiated taxation between biofuels and fossil fuel
Constitutional Amendment 123/2022 has already determined the need to differentiate between these fuels.