Ministry of Finance did not support article included in tax overhaul
Selene Peres — Foto: Geraldo Magela/Agência Senado
Target of criticism from the agribusiness, mining, and oil sectors, the article included in the tax overhaul that allows states to create a contribution on primary and semi-finished products had the support of most governors, after a movement led by the Central-West region, but did not have the technical support of the Ministry of Finance, Valor found.
Members of the ministry have avoided direct criticism of the inclusion of the article, but admit, privately, that it was a political decision of the Parliament. The excerpt was passed within an amendment, after the vote in the first round of the main text. Government officials said that the role of the Ministry of Finance is to give subsidies to the debate, providing deputies with positive and negative points to each measure taken, but that the final decision is up to Congress.
Asked specifically about the possibility of states creating a new tax, Finance Minister Fernando Haddad said that the “innovations” inserted at the last minute in the text generate “greater concern because they were little debated.”
He defended the Senate’s changes to the text without specifying which ones, citing only the need to reduce the number of exemptions to the standard rate of the future value-added tax (VAT). The minister also signaled that he saw no problem in slicing the tax overhaul to enact the points of consensus and debate the sections without agreement.
Senator Eduardo Braga, the proposal’s rapporteur in Senate, told Valor he still has no opinion on the matter. Mr. Braga also said he will listen to the Finance and Planning ministries before making an assessment of the measure.
“It’s something we have to look at carefully,” the senator said. “All this will have to be analyzed. It will have an impact on inflation, because the basic food basket will be impacted.”
Valor found that although the movement was led by the Central-West region, most states agreed to the inclusion in the tax overhaul of the article that will allow the creation of the new tax. The agreement was made to ensure that all states had some of their demands met. It was also a way to make the vote feasible.
However, a source linked to the states said that since some governors managed to include in the reform agendas that were not agreed by the majority, such as the governance criteria of the Federative Council, support for the article “loses substance.” “I do not know how this will materialize in the Senate,” said this source.
A governor who asked not to be named said he saw no problem with keeping the section in the reform if it ensured a vote on the proposal in the Senate. He also said it was too early to assess whether the removal of the article could lead to the loss of important support for the reform.
Goiás’s Secretary of Economy Selene Peres said that the section was necessary to finance investments in infrastructure works, such as highways to export the agricultural production. “We are in favor of maintaining the infrastructure fund because these investments are necessary to move agricultural production and it makes more sense to charge from those who travel with heavy loads and depend on the good condition of the roads to produce,” Ms. Nunes said.
She said Goiás learned of the initiative through other states and expressed its support, but that the article is an accessory point that does not change the harsh criticism that the state has made of the reform.
Currently, some states already collect a contribution from companies to finance infrastructure investments. However, this contribution is voluntary and made through funds (with advantages for the companies that join), since subnational entities do not have the competence to impose this type of tax.
The article included in the overhaul, on the other hand, allows the states to constitutionally impose this contribution, which would no longer be voluntary. The objective would be to finance investments in infrastructure and housing, replacing funds currently managed by states.
This section has worried the mining, agribusiness, and oil sectors, which are the most affected ones. A coalition of associations and entities is expected to be formed to try and overturn the article in the Senate.
Tax lawyers told Valor that if the article remains in the law, it could be disputed in court. Carlos Eduardo Navarro, a partner at Galvão Villani, Navarro, Zangiácomo, and Bardella law firm, said there was no discussion about this provision, which was included at the last minute in the text passed by the Chamber.
According to Mr. Navarro, who is also a professor at the business school FGV and the Brazilian Institute of Taxation (IBDT), as the reform was written, “a blank check has been given to the states to do whatever they want, and taxpayers are very helpless.” In his view, “this contribution is undoubtedly the worst news of the overhaul because it creates another tax without any kind of parameter or limitation of the legislator.”
According to him, the article only states that primary and semi-finished products will be taxed, and the date that this tax would cease to be levied is December 31, 2043. But it does not say what type of operation it would affect, whether in export, commercialization, whether the entire chain would be taxed (multi-phase) or only one stage of the chain (single-phase). “There is no design for this new tax, which can be disputed because it goes against the tax system established by the Constitution,” Mr. Navarro said.
For the lawyer Tércio Chiavassa, of Pinheiro Neto Advogados, the article is very open and worrying. “There is a fear of what can be done with it,” he said. In his view, if it is passed without changes, it could be challenged in court for violating Article 155, item II, of the Constitution, which talks about the competence of the states to institute taxes.
The Brazilian Mining Institute (Ibram), one of the sectors that would be affected, also expressed concern about the amendment and advocated that the text be changed in the Senate.
Former Minister of Defense and CEO of Ibram, Raul Jungmann, said the article included is obscure because it allows the most diverse interpretations. “If it has course, it will be disputed in court,” he said. He argued that the Senate is acting independently in relation to the analysis of the section, because in a constitutional amendment, neither house is reviewing the matter.
*Por Jéssica Sant’Ana, Caetano Tonet, Julia Lidner, Adriana Aguiar, Beatriz Olivon — Brasília, São Paulo
Source: Valor Interrnational