The Cide of the Manaus Free Trade Zone and the national industry in the Tax Reform – 11/16/2023 – What tax is this

The Federal Senate concluded the vote on the Tax Reform, PEC 45, which must return to the Chamber of Deputies for new sessions in light of the changes caused.

The entire legislative process of this PEC was accelerated, which has prevented society and scholars from analyzing with due attention all the constitutional changes that are being approved, which already reach more than 40 pages. Although there are many points to comment, there is one that is going unnoticed, and will certainly generate a great economic impact on the national industry. It concerns the creation of a CIDE (Contribution for Intervention on the Economic Domain), as a form of protection for the ZFM (Manaus Free Zone).

There is little doubt about the need to protect the ZFM, which surrounds the city of Manaus, in the state of Amazonas. The approved text maintains this protection in several passages, also creating art. 92-B providing that the laws that establish CBS and IBS, “will establish the necessary mechanisms, with or without counterparts, to maintain, in general, the competitive differential assured to the Manaus Free Zone”, which, in a certain way, , is adequate and consistent with the protection that already exists in the Constitution since its origin, based on art. 40, and later in art. 92-A of the current text of the ADCT (Transitional Constitutional Provisions Act).

The surprise arises with the proposal to create a CIDE in the text of §1 of art. 92-B, of PEC-45, by establishing that “To ensure the provisions of the caput, fiscal, economic or financial instruments will be used, individually or cumulatively and, alternatively, observing the provisions of article 149 of the Federal Constitution, contribution of intervention of the economic domain on the import, production or commercialization of goods that have industrialization encouraged in the Manaus Free Trade Zone, guaranteeing favored treatment for operations in that area”.

Simplifying and highlighting the text, it appears that to ensure the competitive advantage of that region, a CIDE could be created on the “import, production or commercialization of goods that have industrialization encouraged in the ZFM”, that is, using an example, which, If no one changes it, it will become a constitutional norm: if there is a plastic cup industry installed in the ZFM, all other Brazilian industries for the same product could be burdened with the creation of a CIDE, to ensure the region’s competitive advantage. In other words, it is proposed to increase the tax burden on national industry to protect local industry — as simple as that.

The wording is very broad, as it allows this taxation to be imposed on all companies that are outside the ZFM, producing, importing or selling, which generates a very wide possibility of reach.

It will be enough to import a product that is also used in the production encouraged by the ZFM for the entire national industry to be overburdened.

This proposal substantially changes the ZFM’s protection focus, as, until now, the aim was to reduce the tax burden for industries that were located there, however, this proposal changes the game, creating a mechanism to increase the tax burden for the entire the national industry that produces, imports or sells something similar to what is produced there in an incentivized manner. Therefore, instead of reducing the local tax burden, there will be the possibility of increasing the national tax burden, in favor of industries located in that region.

This is certainly a bold proposal, which changes the entire protective tax system of that specific region, located around the city of Manaus, to the detriment of the entire national industry.

It is undeniable that the CNI (National Confederation of Industries) has been supporting Tax Reform, which can be seen even on the billboards spread across Brasília, including at bus stops. Does the CNI also support this CIDE-ZFM? Will the Chamber of Deputies accept transforming this text into a constitutional norm?

Tom Jobim was right: Brazil is not a country for beginners.

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