Tax experts question efforts like the ones that angered farmers in Paraná and Goiás
11/25/2022
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After confusion in the Goiás Assembly on Tuesday, discussion about fund fed by agriculture production had to be postponed — Foto: Denise Xavier/Alego
Two proposals aiming to tax agriculture production and commercialization in Goiás and Paraná caused turmoil this week and, as a consequence, the cell phones of tax experts used to advise businesspeople in the sector rang more frequently in the last days.
Similarly, the two bills suggest the creation of funds fed by percentages collected from the production and commercialization of agribusiness chains. In Goiás, the proposal for the creation of the State Infrastructure Fund (Fundeinfra) came from Governor Ronaldo Caiado. In Paraná, it was suggested by Governor Ratinho Junior.
The governors, both supporters of President Jair Bolsonaro, faced strong resistance from the sector, which led to a riot in a legislative session in Goiás. The sector is a stronghold of Bolsonarism and felt “betrayed.”
Goiás’s Fundeinfra was approved last Wednesday and will collect up to 1.65% of the agricultural and mineral production, which is expected to yield R$1 billion a year. The money will be used for infrastructure and will not go through the state treasury. According to the secretary general of Goiás, Adriano da Rocha Lima, the money will go to the agency responsible for public works.
The funds will be managed by a council formed by representatives of the government and the agribusiness sector, he said. After the approval of the fund by the state deputies, the next step is the preparation of the decree that will regulate the collection in each segment. Goiás will tax soy, corn, and sugarcane.
“A dialogue will be opened to adjust the collection in the most assertive way possible,” Mr. Lima told Valor. According to him, the collection will compensate the impact on the state cash flow of sales tax ICMS reduction in some segments, such as fuels.
“It is a way for the sector to contribute with something that, in the end, will return to the producer himself. If the roads improve, there are logistical benefits and costs fall,” he said.
The formation of funds that tax the sector to increase the cash flow of states is not a recent strategy. It has existed since 1999 when Mato Grosso do Sul created the Road System Development Fund (Fundersul). Then, in 2000, another state, Mato Grosso, created the State Fund for Transportation and Housing (Fethab). This fund regulates the contribution collected in the country’s largest agricultural state and has served as a reference for others that were created afterward.
Among them are Maranhão’s State Fund for Industrial Development, approved in 2005, and Tocantins’s State Fund for Transportation, in 2019. For the most part, the money collected is earmarked for infrastructure, construction works, and logistics projects.
Besides the levy on agricultural products, these funds have other points in common, such as the definition that contributions are not compulsory but tied to the concession of tax benefits in the states. Tax experts question this aspect.
Another common point in those funds is money management. In general, they are managed by boards of directors that may include the participation of private entities.
Tax attorney Marcelo Guaritá, partner at the Peluso, Stupp e Guaritá law firm, explains that the contributions are required in exchange for some incentive, benefit, tax calculation regime, or tax deferral.
As a result, there is a consensus among tax specialists about the creation of a kind of “disguised tax.” The problem with funds that tax agriculture production, critics say, is not the search for revenue for public policies, but the way this search is being carried out.
“These funds are a legal fiction. They are not treated as taxes, so they are not under tax or budget legislation,” said Mr. Guaritá. According to the lawyer, who has been a member of São Paulo Municipal Tax Council, it is like “signing a blank check” and handing it into the hands of the governors.
Mr. Guaritá and other tax lawyers consulted by Valor said that the tool was designed by the states as a way to collect taxes “outside the box” of the tax rules to avoid constraints.
Mr. Guaritá reiterates that several constitutional principles guide tax collection in the country. “Taxes need to be shared with municipalities, for example. In Mato Grosso, part of the funds goes to the Judiciary branch, to the Legislative branch, and even to private associations. If it were a tax, it wouldn’t work like this,” he said.
Even the terms fee, tax, and contribution could not be used in these collections. Each one of them has a different meaning in the tax system and is subject to different rules, said Henrique Erbolato, a tax lawyer and partner at Santos Neto Advogados.
In Mato Grosso, where Fethab is in force and collected more than R$2.7 billion in 2021, the collection of the contribution varies between 0.03% and 11.5% of the Standard Fiscal Unit of Mato Grosso (UPF), depending on the product. In Mato Grosso, the sector’s contribution is collected from soy, corn, cotton, beans, wood, and cattle. The gross production value of the agribusiness sector in the state is around R$200 billion per year.
The contribution is not mandatory, but in Mato Grosso, it is tied to sales tax ICMS exemption. If a soy exporter chooses not to contribute to the fund, he will have to pay ICMS earlier to the state, and it will be refunded only after the international shipment is made.
Due to the possibility of refunding, the Federal Supreme Court (STF) understood that there is no compulsoriness. The court analyzed the functioning of the collection that allocates money to Fethab in direct action for the declaration of unconstitutionality (ADI). “In the end, it’s a matter of cash flow,” said Mr. Lima, from the government of Goiás.
Critics say this is not so simple. “It turns out that this [how the fund works] leads a taxpayer to prefer to deliver a little bit to the fund rather than having to face a whole bureaucratic process to get back a money that before [the emergence of the fund] he wouldn’t need to disburse [ICMS on exports],” said Henrique Erbolato, a tax lawyer and a partner at Santos Neto Advogados law firm.
João Reis, a partner at Machado Meyer Advogados, added that the charge ends up causing distortions in the chain that affect the competitiveness of Brazilian products abroad. “There are other ways to compensate for revenue losses in the states, such as in Goiás. There are legislative bills that offer alternative solutions and can be discussed in Congress, because they involve the Brazilian state.”
The debate in the Supreme Court is not over. The emphasis is on the constitutionality of the funds. “The Federal Constitution has a provision that says that it is not up to any state to restrict the hypotheses of tax immunity,” stated Mr. Erbolato.
The issue was analyzed by tax specialist Heleno Torres, a professor at the Law School of the University of São Paulo (USP). Mr. Torres’s opinion says that Fethab legislation cannot condition the tax benefit to a collection: “In other words, the threat of revoking the non-taxation of export operations runs up against the prohibition of this taxation.”
“It is flagrantly unconstitutional,” continues the text. Besides paying ICMS, exporters are also exempted by the Constitution from federal tax IPI, social taxes PIS and Cofins, sales tax ICMS and municipal tax ISS.
Among the authors of at least three ADIs waiting in the Supreme Court queue are Abiec, an association that represents meatpackers, and Aprosoja, a soybean growers association. Two of them are waiting to be evaluated by Justice Gilmar Mendes.
If the Supreme Court decides in the future that the collection of Fethab was undue, for example, there is no guarantee that the money will be returned to taxpayers. Issues involving the return of large sums are subject to the invocation, by the states, of the argument of financial loss to the cash flow.
“Even if in a few years they rule that the collection could not have occurred, they [states] invoke this to get the collection to be valid after the judgment,” says the partner of Santos Neto.
Even as the decision of an ADI is valid for everyone, lawyers have been advising clients to go to court individually. “The taxpayer who just waited for the ADI’s decision can get rid of the payment [only] from then on, while those who went to court individually beforehand have their right guaranteed. This is how the Supreme Court has understood it,” explained the tax specialist of Santos Neto firm.
This may be a favorable step for the interests of law firms, but the professionals themselves recognize that it is not good for legal security in the country. Given the legal scenario, political pressure moves forced by the sector at this moment would be a more efficient alternative to stop a possible wave of new funds of this nature, according to legal experts.
*By Erica Polo — São Paulo
Source: Valor International