“Tax reform has been discussed in Brazil for over 20 years, and there is a consensus in society that it is necessary…”
Camila Lotito is a partner at Martinelli Advogados (Law Firm), graduated in law from PUC, specialized in tax law, with a M.Sc. degree from FGV.
AgriBrasilis – What will be the impacts of the tax reform on Brazilian agriculture?
Camila Lotito – The impacts come from the loss of tax incentives, which might cause an increase in the tax burden in the production chain, even considering the tax rate reductions provided for in the new regime for agricultural products. In addition, there will likely be an increase in production costs, due to the burden on essential services, such as transportation, logistics, storage and leasing, which were previously taxed at different rates or not taxed at all, and which will now be subject to the new taxes at full rates (IBS/CBS).
AgriBrasilis – Why is this reform considered necessary?
Camila Lotito – Tax reform has been discussed in Brazil for over 20 years, and there is a consensus in society that it is necessary. This is because the country’s tax burden is regressive, meaning that those who earn less are taxed more – and this inhibits consumption; and it is complex and uncertain – there are so many taxes and so much legislation that it creates legal instability – taxpayers often have difficulty knowing whether what they are doing is right or wrong, and this inhibits investments.
AgriBrasilis – What changes for farmers in Brazil? What are the pros and cons?
Camila Lotito – For farmers who pay IBS and CBS, who will lose the tax benefits of the current regime, there will be a 60% reduction in the tax rate on the purchase of agricultural products – considering an IBS and CBS tax rate of 26.5%, for example, an increase in the tax burden of around 10.5% is estimated. Furthermore, it is important to mention a possible increase in production costs, resulting from the contracting of essential services (a sector that will also be impacted by an increase in the tax burden, as mentioned).
However, these effects may be minimized due to the possibility of taking ample credit from IBS and CBS.
It is worth clarifying that farmers with gross revenues of less than US$ 630 thousand/year may choose not to be IBS/CBS contributors, in which case a presumed credit will be granted to the purchaser (taxpayer). The amount of this credit has not yet been determined, but it may generate a preference, in the market, for small farmers.
AgriBrasilis – Could this result in higher food prices? Why?
Camila Lotito – Yes, considering that, in addition to the farmer, all other phases of the agribusiness production chain will be impacted by the tax reform (even with the 100% tax rate reduction for basic food items, which will possibly not be enough to neutralize the increase in the tax burden on agribusiness, even combined with broad credit).
AgriBrasilis – Which aspects of tax reform require the most attention?
Camila Lotito – One of the topics that generates the most expectations in the context of tax reform is the setting of IBS/CBS rates, which will be done by specific law of the respective federative entity (States and Municipalities for IBS and Federal Union for CBS). The Federal Senate will set reference rates for such taxes, with the purpose of maintaining the tax burden.
Another important aspect involves analyzing the impact of tax reform on each business model, which does not depend only on the benefits that will be eliminated and the new IBS/CBS calculation system, but also on variables such as the price charged by suppliers, logistics costs, industrial processing models and the final price of products – in other words, it will be necessary to analyze the entire production chain, since tax incidence can affect suppliers, partners and customers in different ways.
One last point that deserves to be highlighted is the need to adapt ERPs. The new tax regime, in addition to the creation of taxes, brings new guidelines such as taxation at the destination and the adoption of a broad-based credit and debit model, in addition to the issuance of an invoice with automatic calculation of rates and a new structure of accessory obligations.
AgriBrasilis – During the transition, will companies operate under two tax regimes? How can this adaptation be made?
Camila Lotito – During the transition period (until 2032), the two tax regimes will coexist, requiring multidisciplinary action by taxpayers in the adaptation process.
This action involves, in particular, (i) the tax area, with the survey of possible PIS/COFINS and ICMS credits, the mapping of the tax burden of the new regime and the planning of the business model to be implemented – considering the possible applicable rate reductions, the possibility of broad credit and taxation at the place of consumption; (ii) the accounting and technology area, with the review and adjustment of the ERP and maintenance of double accounting; (iii) the commercial area, with the review of contracts and prices charged; (iv) the labor area, considering the possible impacts of the tax reform; and (v) the HR area, with the training of teams.
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