Basic food basket, medicine, streaming: what changes with tax reform

Basic food basket, medicines, fuel, internet services in streaming (transmission of content in real time) . With a long list of exceptions and special rates, the new tax system will have varied impacts depending on the sector of the economy. At the same time, for the first time in history, there will be measures that guarantee progressivity in the taxation of some types of assets, such as vehicles, and in the transmission of inheritances.

Check out how the tax reform will change the consumer’s daily life

Cesta básica

Item that generated the most controversy in the final processing of the tax reform, the basic food basket should be reduced when a complementary law defines a national list of products that will have zero rate of the Contribution on Goods and Services (CBS). The final impact on prices, however, is still unknown.

Days before the vote on the reform, the Brazilian Association of Supermarkets (Abras) presented a report according to which the basic basket could rise 59.83% on average with the previous wording of the tax reform, which halved the dual Value Added Tax (VAT) rate. The study, however, was contested by economists, parliamentarians and members of the government itself.

Last Monday (4), the rapporteur for the reform in the Chamber, Aguinaldo Ribeiro (PP-PB) contested the estimates. The deputy presented a study by the World Bank, according to which the tax burden on the basic food basket would drop 1.7%on average, with the dual VAT rate reduced by 50%.

On the same day, the Extraordinary Secretary for Tax Reform at the Ministry of Finance, Bernard Appy, said that the new system would make the basic food basket cheaper. He promised to publish calculations that would prove the thesis, but did not present the estimates. Shortly before the beginning of the votes on the tax reform, the president of the Chamber of Deputies, Arthur Lira (Progressistas-AL), repeated the estimates of the World Bank study.

The disparity in the estimates occurs because currently many basic basket products are taxed in cascade, with taxes levied on the price in the previous stage of the chain, before reaching the supermarkets. The current exemption from federal taxes on products in the basket makes products cheaper, on the one hand, but, on the other hand, prevents the use of tax credits, refunds of taxes paid in previous stages of the production chain.

In the dual VAT system, the return of tax credits, according to the government, would offset the collection of taxes. The dual VAT rate will only be defined after the tax reform. The Abras report used a VAT rate of 12.5%, half of the probable full rate of 25% estimated by economists, to justify an eventual increase in the price of the basic food basket.

With the pressures caused by Abras estimates, the rapporteur Aguinaldo Ribeiro modified the text and zeroed the rate for products of the future national basic basket, to be defined by complementary law. While the new list is not defined, food will have VAT reduced by 60%, instead of the original 50%. Products outside the basic basket and agricultural inputs will also pay this reduced rate.

The new 60% reducer and the future zero rate should make the products in the basic basket cheaper, but the calculation on the final impact can only be made when the tax reform comes into effect. More industrialized items, with a longer production chain, should see a greater price reduction. Foods in natura or little processed should have a slight reduction or even a slight increase because they will have few tax credits.

Medicines

Experts say that the reform should not generate major impacts on the price of medicines – Brazil Archive/Agency

The approved text provides for a reduced rate of 60% for medicines and basic menstrual health care products. Medicines used for the treatment of serious illnesses, such as cancer, will have a zero rate.

According to experts, the reform should not have a major impact on the price of medicines. This occurs for two reasons. First, generic drugs are subject to specific legislation. In addition Lei 10.047from 2000, establishes a special tax regime for drugs listed by the Ministry of Health.

Fuels

The tax reform establishes a differentiated treatment regime for fuels and lubricants. Dual VAT, with a single rate throughout the national territory and varying according to the type of product, will be charged only once in the production chain, in refining or imports. The change follows a reform proposed in 1992.

According to the Brazilian Institute of Oil and Gas (IBP), the change will lead to a strong increase in the final price for consumers.

Experts, however, claim that the impact is uncertain because many points of the differentiated regime for fuels will be defined by a complementary law and the reform provides for the possibility of granting tax credits. Furthermore, the impact will only be known after defining the full rate of dual VAT.

Vehicles

The collection of Motor Vehicle Ownership Tax (IPVA) will now be levied on water and air vehicles, such as jets, helicopters, yachts and jet skis. The reform also establishes that the tax will be progressive, according to the environmental impact of the vehicle. Vehicles powered by fossil fuels will pay more IPVA and those powered by ethanol, biodiesel and biogas, and electric cars, less.

During negotiations for tax reform, however, an exception list was created to avoid charging vehicles used for agriculture and services. The list covers agricultural aircraft and aircraft certified to provide air services to third parties; vessels owned by legal entities with waterway transport services granted; vessels owned by individuals or legal entities engaged in industrial, artisanal, scientific or subsistence fishing; platforms that move on water without trailers (such as a drillship or platform ship) and tractors and agricultural machinery.

services

The tax reform may make services in general more expensive. This is because the sector, without a long production chain, will benefit less from tax credits and will be taxed with a dual VAT rate, which may be 25%, higher than the current 9.25% of the Social Integration Program (PIS) and of the Contribution for the Financing of Social Security (Cofins) levied on companies with presumed profit, a situation that encompasses the majority of service providers.

Some types of service, however, will have a reduced rate of 60%. Public transport, health, education, cybernetic, information security and national security services will benefit.

At a hearing in the Chamber of Deputies at the end of June, Appy said that other elements should offset the higher rates. First, he cited the economic growth resulting from the tax reform as a factor in job and business generation.

In addition to the expansion of the economy, Appy stated that the end of cumulative taxation (cascading taxation) will bring gains to service companies, which will be able to use tax credits currently not used. He also cited system simplification and reduced litigation and investment cost as factors that will spur services. At the installation ceremony of the Council’s Thematic Committee on Economic Affairs, on the 4th, the secretary said that the tax burden for some types of service will fall from 7% to 13% with the tax reform.

Last Thursday (6), the Institute of Economic and Applied Research (Ipea) published a study according to which the Gross Domestic Product (GDP) could grow up to 2.39% only with the first version of Aguinaldo Ribeiro’s report.

internet services

As well as for services in general, streaming internet will pay a higher rate. The same will happen with transport and food delivery apps. The Ministry of Finance ensures that the reduction in the price of electricity will offset these increases, resulting in little impact for the consumer.