Cumulative consumption taxes make industrial products more expensive by 7.4%, says study

In an interview with Brasil 61, Sergio Gobetti, a researcher at the Institute of Applied Economic Research (Ipea) assigned to the Rio Grande do Sul State Treasury Department (Sefaz-RS), explained what this cumulative nature is and stated that the tax reform resolves this problem, which makes Brazilian companies less competitive.

According to the economist, the cumulative nature of taxes levied on the purchase of products or services occurs in two ways. In the first, a tax is levied on itself or on other taxes. “In the current tax system we have situations where one tax is levied on another. For example, the ICMS is levied not only on the value of the goods being purchased, but it is levied on the PIS-Cofins that was charged for that goods.”

But there are cases in which the ICMS – tax charged by the states – ends up being levied on you, says Gobetti. “When we say that the ICMS rate, for example, is 25%, people think that the (value of) tax is 25% more than what they paid for the goods and, in fact, it is not. It is 33 more %. How so? We can think of it this way: if I paid R$ 100 for a product, with ICMS, it means that of those R$ 100, R$ 25 was tax, that is, 25% percent of the value. But how much was the value of the goods without tax? It was R$ 75. How much is the division 25 by 75? It is 33%”, he explains.

The specialist says that there is the so-called classic cumulativeness, better known by people, in which taxes are levied on inputs or raw materials used in the production process. That is, taxes are levied on all stages, from manufacture to sale, without generating compensation.

He illustrates that a car manufacturer, for example, pays taxes on the parts that make up the vehicles and on the payroll of the labor contracted for production. However, after selling the car to the consumer, the company pays more tax on the operation. “The tax she paid before on the material she used to build the car is paying again in this new phase.”

The good news for the productive sector, according to Gobetti, is that the tax reform will put an end to the cascading tax. Thus, the tax will be charged on the added value between one operation and another of the production process, no longer levied on the taxation of the previous stages.

Exports

Gobetti believes that the reform will help relieve Brazilian exports. On the one hand, because the final price of products and services will no longer have the impact of cascading taxes. On the other hand, because there will be a change in the place of taxation of goods and services.

The specialist explains that, although sales by national companies abroad are exempted by law, in practice this does not happen. The problem occurs because consumption taxes, such as ICMS and ISS, are charged in the states and municipalities of origin of the products and services and not at the destination. This makes life difficult for exporting companies.

“When the company acquires inputs to manufacture the product it is going to export, it pays tax. The tax system allows that, in this case, it obtains reimbursement for this tax. When does the problem arise? This current system makes the invoice of the credit is collected not in the state where the tax was paid and, many times, this makes things difficult for the exporting companies to obtain the refund of the credit”, he adds.

The expectation is that, with the collection at the destination, the exporting companies will be able to recover the credits to which they are entitled and, thus, become more competitive in the foreign market.

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