In Brazil’s economic panorama, agribusiness occupies a highly important place. According to data from the Center for Advanced Studies in Applied Economics (Cepea), the sector should be responsible for around 24.4% of the country’s GDP in 2023, with approximately R$2.63 trillion.
Because of its importance, the impacts of tax reform on the sector are being much discussed, especially in the regions that stand out in agribusiness.
One example is Goiás, which is renowned for its production of sorghum, corn, wheat, tomatoes, sugar cane and soybeans. In 2017, the state exported approximately 76% of all its production. In 2022, these exports brought in revenues of US$ 11.7 billion.
These and other figures consolidate Goiás’ prominent position in Brazilian agribusiness. In the 2021/2022 cycle, for example, it ranked third in grain production in the country and, in 2022, its Gross Value of Agricultural Production (VBP) was the fifth highest in Brazil.
Given these figures, the need for producers in the region to be fully aware of the effects of the tax reform on agribusiness is obvious.
Some points of the reform worry producers. The first of these is related to the weakening of the federal pact, in view of the abolition of the ICMS. In addition, it is possible that there will be a reduction in revenue for all Brazilian states.
Another worrying point is the extinction of tax benefits, which could lead to capital migrating to other economic centers.
The new rules will create the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS), which will be levied nationwide and at a single rate for all sectors of the economy. The Federal Government estimates that the base rate could vary between 26.9% and 27.5%.
The tax reform proposal, approved by the Senate, confirmed the intention to put an end to special and/or differentiated regimes. As has been said, this move creates insecurity for the agricultural sector, which has numerous tax benefits aimed at balancing all the risks involved in its exploitation, due to its undeniable importance, as it is goods that guarantee human subsistence.
To compensate for this, the text provides for a 60% reduction in IBS and CBS rates for food intended for human consumption, agricultural, aquaculture, fishing, forestry and plant extraction products in natura and agricultural and aquaculture inputs.
Another provision already included in the reform is the reduction of the IBS and CBS rates to zero for products intended for human consumption, which make up the National Basic Food Basket.
These reductions, which still depend on a Complementary Law, are received with optimism, as they not only bring advantages to the consumer, but also stimulate the production and sale of these essential items.
If implemented as approved, these measures have the potential to prevent a rise in product prices, which will ease the tax burdens that are worrying companies in the sector.
However, this reduction is accompanied by a concern: in addition to the IBS and CBS, we will also have the Selective Tax (IS), which will be levied on the production, extraction, marketing or import of goods and services that are harmful to health or the environment.
This tax could cancel out the reduction granted to the sector, increasing the tax burden on vital inputs such as pesticides, herbicides and insecticides.
The fear is that this tax increase will neutralize the benefits of the reduction in the general rate and negatively affect the cost of production, with possible passing on to the end consumer.
One of the greatest benefits of the reform is the implementation of full non-cumulative taxation, which allows the full use of tax credits, which will certainly bring benefits to the sector.
This is the foundation on which the reform is based, aiming to eradicate the cascading effect that makes national taxation so expensive and complex. As a result, the agro-industry will be able to enjoy a more predictable and equitable tax environment.
However, it is prudent to remain moderately cautious about the reform. Although it proposes a promising scenario, implementing the changes and maintaining the effective tax burden will still require close observation and assertive fiscal management, not least because the complementary law is still missing, in which the most sensitive issues will have to be dealt with and resolved.
Discussions on the tax reform have not yet been finalized, much less is it known what its real scope will be, but one thing is certain: understanding the issues that are being dealt with must be a priority so that there is proper preparation for the next points that will be the subject of analysis and changes.
