Ruralist bench promises to overturn Fiagros' veto in tax reform

Ruralist bench promises to overturn Fiagros' veto in tax reform

The sector fears a reduction in private credit with possible encumbrance of these instruments

By Rafael Walendorff
— Brasilia

President Luiz Inácio Lula da Silva's veto of the section of the law that allowed the exemption of agribusiness investment funds (Fiagros) in tax reform will open a new battle between the government and the ruralist group in Brasília. The sector fears a reduction in private credit with a possible burden on these instruments.

The vice-president of the Parliamentary Agricultural Front (FPA), deputy Arnaldo Jardim (Cidadania-SP), criticized the veto and said that the group will work to reverse the decision in the National Congress. According to him, the measure inhibits investments in strategic sectors of the economy and slows down the advancement of mechanisms that have become financing alternatives in the countryside in times of budgetary and fiscal tightening in the Union to support agriculture.

"We received this veto with surprise. During the tax reform, the topic was discussed and approved without any objection. We don't really know what motivated the government. The alleged justification is legal, the inopportunity of dealing with this in ordinary regulation. This had not been raised before", said Jardim, who was the author of the project that gave rise to the Fiagros law.

For Jardim, the veto argument is fragile. "We are going to work to overturn this veto. Investment funds have proven to be an important financing alternative for strategic sectors of the economy, at a time when the government says it has fiscal balance challenges, which has limits to carry out any incentive policy", he pointed out.

“Fiagros are an alternative to the Plano Safra. 18 years ago, all financing came from there, today it is 30% because the market was creating alternative financing routes. We think it would be a mistake to inhibit this”, he reported.

Jardim said that the veto affects small savers in the country. Currently, around 600 thousand individuals invest in Fiagros. In real estate funds, also impacted by the measure, there are 1.8 million shareholders.

"The average investment ticket in Fiagros is something around R$ 15 thousand. The veto is a blow to this sector that has been fundamental in the resumption of development", he reported. In addition to the FPA, the Parliamentary Entrepreneurship Front (FPE) will also support the overturn of the veto, said Jardim.

In a statement, the FPA confirmed that it will try to overturn the veto. "Taxing these funds compromises competitiveness, increases costs for producers and affects the supply of credit. The presidential veto has the potential to raise interest rates, restrict credit and slow down sectors that are engines of economic growth", said the ruralist group.

The Fiagros, created in 2021, accumulate assets of more than R$40 billion, almost entirely invested in rural credit. “These funds play an essential role in the economy, with contributions accessible from R$6. In agribusiness, which employs 28.6 million people and accounts for almost 25% of the national GDP, Fiagros are indispensable to fill the gap in public and bank credit”, concluded the FPA.

The presidential veto maintains investment and asset funds as taxpayers of the Goods and Services Tax (IBS) and the Contribution on Goods and Services (CBS). In its justification, the government said that “there is no constitutional authorization for investment funds and endowment funds not to be considered contributors.”

Lawyers who work in agribusiness say that the encumbrance will slow down the growth of these instruments and reduce the participation of private credit in financing the sector.

In the view of Eduardo Lourenço, partner at Maneira Advogados, the veto is undue. Analysis carried out by the office says that the government targeted an alleged violation of the law's provision that prevents the granting of financial and tax incentives and benefits to IBS in the tax reform to justify the measure.

He says there is a difference between “relative financial or tax incentives and benefits” and the definition of a taxpayer.

"The first consist of measures that directly or indirectly reduce the tax burden on certain taxpayers, operations or sectors, aiming to encourage specific behaviors or alleviate burdens in strategic areas. On the other hand, the definition of taxpayer refers to the essential core of tax legislation: identifying the taxpayer of the tax obligation, that is, the person who, according to the objective criteria of the law, assumes responsibility for paying the tax", he points out. He further clarified that the Constitution did not define who the taxpayers of IBS and CBS are.

"It is not correct to say that there is unconstitutionality when the Complementary Law defines that the resources are not taxpayers. This is a technical delimitation of passive liability, whose objective is to preserve the functionality and coherence of the tax system, including in relation to neutrality and the non-existence, in practice, of benefits (which will be dealt with in due course)", he explains.

Lourenço stated that the status of “non-contributors” to the funds avoids economic distortions, ensures tax neutrality and prevents the tax system from “unduly interfering in economic decisions”.

https://globorural.globo.com/politica/noticia/2025/01/bancada-ruralista-promete-derrubar-veto-aos-fiagros-na-reforma-tributaria.ghtml