The reform on consumption tax may create tax advantages for two kinds of basic-needs grocery packages in Brazil. The first one is less diverse and essential, which would be tax-free. The second one, which has more items and is more flexible, would have reduced taxes that could be given back in full to low-income consumers through cashback.
The idea was presented on Wednesday (25) by Senator Eduardo Braga (Brazilian Democratic Movement). Braga is the rapporteur on Senate Tax Reform. He included in his opinion articles providing for the creation of two kinds of basic-needs grocery packages and different taxation for each.
Braga’s opinion may be voted on in the Senate’s Constitution and Justice Committee (CCJ, in Portuguese) on November 7. The Senate's president, Rodrigo Pacheco (Social Democratic Party, Minas Gerais state), intends to decide on the reform in the plenary until November 31.
Luiz Inácio Lula da Silva's government (Workers’ Party) said that Tax Reform is a priority of his economic agenda this year. It was already approved by the Chamber of Deputies. To come into force, it must go to the Senate and have any changes approved again by the Chamber.
The idea of not taxing the products in the basic-needs grocery package had already been approved by the Chamber of Deputies. However, Braga added rules to the non-taxation because, according to him, businesspeople were mobilizing to include “3,000 items” in the basic-needs grocery package. “Caviar, salmon etc.,” he said.
The senator changed the text of the reform so that the basic-needs grocery package has a restricted number of items considered essential for tackling hunger and that are important to the adequate nutrition of the population. Braga’s text provides for regional differences in the packages and that the list of tax-free items be determined by a complementary law. By the way, the creation of a basic-needs grocery package complementary law was already foreseen in the Chamber's proposal.
The news in Braga’s text is the creation of an “extended basic-needs grocery package”, which would have more items, perhaps up to the 3,000 ones mentioned by Braga. All of them would possibly have reduced taxation – 60% lower than usual. Furthermore, any tax paid when purchasing them could be returned to the poorest consumers in the form of cashback.
Cashback is a kind of refund for taxes paid. The Tax Reform provides for the return of taxes paid by low-income people to somehow diminish the amount of taxes on this group.
First, Braga talked about the importance of people registered in the so-called CadÚnico, of the federal government's social programs, being entitled to receive back the taxes paid on the extended basic-needs grocery package.
The Tax Reform foresees a general tax rate of around 30%. With the 60% discount on this 30%, Braga estimates a tax burden of 10% on products in the extended package. The items in this package would also be defined by a complementary law to be approved by Congress.
“There will be a basic-needs grocery package with items to tackle hunger, with 0% taxation, and an extended basic-needs grocery package with 10% tax and cashback,” Braga explained in a press conference on Wednesday.
The importance of complementary law
Alan Tygel, a member of the coordination of the Permanent Campaign Against Pesticides, said that Braga’s proposal reinforces the relevance of debates about complementary laws on the basic-needs grocery package after reform.
To him, the 0 taxation on essential and nutritious products is positive. However, it is needed to guarantee the inclusion of products that really matter to a healthy diet. “It is really important that fruits and vegetables be included in the basic-needs grocery package,” he said.
At the same time, according to Tygel, it must prevent food products that were scientifically proven harmful to health from being included in the extended basic-needs grocery package.
“The extended basic-needs grocery package worries us because it isn’t clear whether this 60% discount includes ultra-processed foods that harm health. Biscuits full of salt and sugar can cost less than a healthy meal,” he warned. “We need ultra-processed food to be properly taxed so that we can discourage its consumption.”
What is this reform?
The tax reform will establish changes mainly to consumption taxes. It replaces the taxes IPI, PIS, Cofins, ICMS and ISS with a Contribution on Goods and Services (CBS, in Portuguese), which will be managed by the federal government, and a Tax on Goods and Services (IBS, in Portuguese), managed by states and municipalities.
The reform also provides for the creation of funds to compensate states and municipalities that lose part of their revenue during the transition process to the new tax system.
What is the concept of a basic-needs grocery package in Brazil?
A basic-needs grocery package is a set of food products and other basic-needs products that are considered essential for maintaining a person or family. These products are usually consumed regularly and include items such as food, personal care products and basic cleaning products.
The exact contents of a basic-needs grocery package may vary from country to country and over time, but generally include items such as rice, beans, sugar, cooking oil, wheat flour, milk, meat, fruits, vegetables, soap, and toothpaste, among others.
The package is a fundamental concept for understanding inflation and a country's economy, as the prices of these essential items have a direct impact on people's cost of living. Many governments use the cost of the basic-needs grocery package as a reference to calculate the minimum wage and make decisions regarding public policies related to food and the well-being of the population.
Edited by: Nadini Lopes e Rodrigo Durão Coelho