Taxing exports is out of tradition, but Brazil will not copy Argentina, say analysts – 02/03/2023 – Market

The creation of a tax on exports of crude oil for a period of four months, as announced by the Minister of Finance, Fernando Haddad, last Tuesday (28), deviates from the country’s tradition in foreign trade, but Brazil is far from of repeating the Argentinean experience in the subject, they evaluate.

This Wednesday (1st), the minister said in an interview with UOL that it is a transitional solution and that the profits of companies in the sector are “exorbitant”.

“Companies are making extraordinary profits because of the increase in oil prices. Exorbitant profits. They pay few taxes, in my opinion (…) it is an intermediate solution for us to phase out the reencumbrance, and Congress is going to give the final word”, said the minister to the portal.

Although they see the tax on exports as a bad way out and fear that the tax will last beyond the period of four months foreseen by the government, analysts consulted by the Sheet say the measure has more differences than similarities with the so-called “retenciones” (retentions), taxes on agricultural exports practiced in Argentina.

Argentina’s “retenciones a las exportaciones” or DEX (“derechos a la exportación”) are tax instruments that apply to products destined for foreign countries. In Argentina, the use of this tool, although inconstant, dates back to the end of the 19th century and was used by governments with different ideologies.

In March of last year, the Argentine government officialized the increase in withholdings for soybean oil and meal: the rate rose to 33%, the same percentage charged on exports of soybeans.

“For many reasons, and usually accompanied by the devaluation of the exchange rate, withholdings have been, on the one hand, used as a source of revenue for the government; on the other, as measures to control inflation, promote or protect local industry”, says a study published by Embrapa’s Agricultural Policy Magazine.

Withholdings are not solely responsible, but have been a point of friction between the government and rural associations.

For André Roncaglia, professor at Unifesp (Federal University of São Paulo) and columnist for Sheet, the decision to tax the sale of crude oil at 9.2% ends up acting more like an income tax on exporters. “As the price is determined in international markets, it should not have a short-term effect on the economy,” he says.

“The projection is that it lasts only four months and should serve to rebuild tax revenues after the exemption that was made by the Bolsonaro government last year. The question is the possibility of being renewed and this affecting investor plans, but given the prevalence of Petrobras in this market, the effect tends to be limited.”

Regarding a possible similarity between the tax proposed by the Lula government and the measures taken in Argentina, he assesses that this does not seem to be the government’s intention. “This is a partial recomposition of exemptions.”

“What Brazil is proposing is quite different from Argentine withholdings, as the neighboring government depends on them and this ends up creating a very large distortion”, agrees foreign trade specialist Welber Barral, founding partner of BMJ Consultores. “Contrary to what happens in Argentina, in Brazil, the fiscal situation does not depend on this.”

Barral also believes that Brazil has little experience with this type of measure. “We had something similar in the case of leather exports. I did not have access to the studies that the government carried out before taking this measure now, but eventually it could affect the oil chain.”

The export tax on “wet blue” leather was extinguished by Camex (Chamber of Foreign Trade) in 2018, after being in force for almost two decades. The charge was due to a demand from the footwear sector that claimed loss of competitiveness in relation to competitors in Brazil in the segment and responded to a request from ruralist entities and the Parliamentary Front for Agriculture.

“As a matter of principle, I am against any export taxation. What makes sense to tax, depending on the objective, is the import. In this way, we will be creating distortions for the sector. And the countries that tried to do the same did not have good results, see the case of Argentina”, says José Augusto de Castro, executive president of AEB (Brazilian Foreign Trade Association).

Even so, he agrees that the measures applied in Argentina are not comparable to what the government intends to do in Brazil. “The situation is completely different, the Argentine government depends on withholdings, Brazil does not need the tax to balance its fiscal situation.”

ARGENTINIAN EXPORT TAX IS THE SUBJECT OF CRITICISM

In 2020, the Directorate of Economic Studies of the Rosário Stock Exchange published a study in which it points out the impact of DEX on the economy, especially in the interior of the country.

In their view, DEX generate less planted areas, less economic activity and affect production. The grain, flour, oil and biodiesel sector can generate around US$ 29 billion a year in exports to Argentina, helping to offset the difficulties the country’s economy is experiencing.

The report concludes that the tax falls only on specific goods and does not take into account production and marketing costs, which reduces the principle of the producer’s ability to pay.

“The international experience leaves Argentina practically as the only case of tax burden on its producers of exportable goods, which takes away competitiveness and makes access to markets difficult”, says the text.

Analysts list arguments for and against maintaining the tool to tax Argentine exports. See some of them below:

1. By decoupling domestic and international prices, it serves as a policy instrument to combat inflation and reduce food prices, increasing the purchasing power of wages;
2. It is alleged that there is a concentration in soy production with a strong presence of leases, which implies a supposed profitability of the farms that allows the application of the tax

1. In practice, the tax ends up being incorporated into the production chain, discouraging food production and worsening inflation;
2. It aggravates the distortions between producers from different regions and with different production scales, harming smaller companies and producers