Taxation on food becomes a clash in reform

Report from Valor Econômico published this Friday (12/4/24) dealt with the debate surrounding taxation on food, within the scope of tax reform regulations. The newspaper highlighted a comment byDr. Eduardo Lourenço, partner at Maneira Advogados, on the topic.

Taxation on food becomes a clash in reform

Activists and some ministries defend taxing “ultra-processed products”, while industry and agribusiness seek a lower rate

By Raphael Di Cunto and Marcelo Ribeiro — From Brasília

The tax burden that will be imposed on each type of food after the tax reform has become one of the main clashes in regulation, on the eve of the Lula (PT) government making its proposal on the topic official. Supermarkets, the food industry and agribusiness try to guarantee lower rates for their products, while consumer protection associations and institutions linked to health and family farming push for higher taxes on “ultra-processed” foods.

The tax reform enacted in December will have a standard rate for all products (estimated at 25%), but with two possible reductions for food. Items from the “national basic food basket” will have a zero rate and will not pay IBS/CBS. “Food intended for human consumption” and agricultural, aquaculture, fishing, forestry and plant extractive products “in natura” will pay a rate of 40% of the standard rate (around 10%). Furthermore, there is the possibility of the Selective Tax being levied on “products harmful to human health” – which would make it possible to tax more foods with high levels of fat, sugar or salt.

From this, divergences in interpretation of the text arise. The agricultural sector and part of the food sector argue that all items that are not at the zero rate will automatically benefit from the 60% reduction because they are “food intended for human consumption”. By this logic, selective taxes could not be levied on them, since there is an explicit prohibition in the reform on additional taxation of goods at a favorable rate.

"If the Constitution itself determined that these products, given their importance, will have a reduction in the tax burden, there is no logic in having additional taxation. It would be conflicting", says lawyer Eduardo Lourenço. The Agricultural Parliamentary Front (FPA) presented its own project in March with a wide range of food categories that would benefit, including fats and sugars. The exact list of items would be defined in an Executive act.

The Brazilian Supermarket Association (Abras) caused controversy when it released, last week, a study that suggested that items such as caviar, truffles, lobster and “foie gras” – consumed by people with high purchasing power – should be included in the basic food basket. President of the entity, João Galassi says that the list was misinterpreted and that the objective of the study was to collect the Mercosur Common Nomenclature (NCM) codes of everything that was “eligible” for its nutritional potential, so that Congress can then decide which items to include. "If the law only has the categories, this debate will be in the government and not in the Legislature. We defend that the law already adopts the NCM", he states.

“Processing does not cause them to lose their nutritional value”
— João Dornellas

Analyst at the Brazilian Institute for Consumer Protection (Idec), Ana Maya states that this is the “perfect window of opportunity” to guarantee access to healthier foods for the low-income population. “We know that the cost of food in the country is a determining factor, but the consumption of ultra-processed foods causes chronic and mental illnesses, bringing harm to the population and impacting the SUS [Sistema Único de Saúde]”, he says. She believes that the government will send projects along the lines of those defended by the entity. “Our concern is with interference in Congress from economic sectors that seek profit above that of the population.”

The Extraordinary Secretariat for Tax Reform of the Ministry of Finance has not yet released its proposal, but sectors within the government supported the activists. The National Health Council, linked to the Ministry of Health, pointed out that ultra-processed products and pesticides were responsible for around 50,000 premature deaths per year in Brazil and recommended that the government include them in the list of Selective Tax targets, as well as tobacco and alcohol.

In a technical note obtained by Valor, the Ministry of Agrarian Development and Family Farming also argues that only “in natura” and minimally processed foods benefit from the zero rate. "It is important that the regulations include the guidelines of the Food Guide for the Brazilian Population and that, therefore, ultra-processed foods are not included in any tax benefit. In fact, it is worth considering with the Ministry of Health the possibility of applying the selective tax to some ultra-processed foods, as already recommended by the World Health Organization (WHO)", suggested the Ministry, led by minister Paulo Teixeira (PT).

Galassi, from Abras, counters that the standard rate of the new taxes will already be one of the highest in the world and that even the favored rate – which should be between 10% and 12% – will already be at the average level for food in Brazil today, which is 12%. "You don't penalize or benefit the product for being industrialized. That doesn't mean it's a bad product. What we need to understand is whether it's nutritious and healthy," he says. He points out that foods without any nutritional value, such as sweets, must pay the standard rate, but he is against additional Selective Tax taxation. "We're talking about 25% to 30% [of tax rate]. We don't need to penalize more than that, it's already extremely aggressive," he says.

The president of the Brazilian Food Industry Association (Abia), João Dornellas, contests the activists' proposal and says that the term ultra-processed “is scientifically vague”. According to him, this would lead to an increase in the price of sliced ​​bread, cheese, yogurt and other foods consumed by the low-income population. “Processing does not cause them to lose their nutritional value,” he says. He points out that industrial techniques aim to make the product longer-lasting or tastier and that there are more risks in artisanal foods made without due sanitary care, but often sold as healthier.

Abia launched an advertising campaign to defend the qualities of industrialized products and suggested to the government a “balanced basic food basket”, according to the WHO, with a mixture of carbohydrates, fats and proteins. "Brazil has 33 million people going hungry. “In natura” products are more expensive. Are we going to raise the price of processed foods and make access more difficult?", he asks.

When contacted, the Ministry of Finance informed that it received contributions from various government bodies and sectors of the economy, but will only comment after sending the projects. The Ministry of Agriculture did not comment.

https://valor.globo.com/politica/noticia/2024/04/12/tributacao-sobre-alimentos-se-torna-embate-na-reforma.ghtml