“…the reform introduces the concept of the so-called ‘Sin Tax,’ which seeks to establish a potential levy in the form of a new ‘selective tax’…”
André Ricardo Passos de Souza is a founding partner of Passos e Sticca Advogados Associados – PSAA, a law firm specializing in Agribusiness Law.
Passos de Souza holds a law degree from the State University of Rio de Janeiro and is a guest professor for the MBA programs at Fundação Getúlio Vargas and Esalq/USP.
AgriBrasilis – What are the main changes made by the tax reform (Complementary Law No. 68/2024)?
André Passos – The reform, approved at the end of the year before last through a constitutional amendment, specifically addresses taxes on the consumption and circulation of goods and services. Its implementation is only now advancing with the recent developments of Complementary Bill (PLP) 68/2024.
The Complementary Bill is still awaiting presidential approval and will undoubtedly bring about the effective implementation of the reform, as well as the “operationalization” of most of its provisions by 2026.
While the reform aims to consolidate and replace the numerous existing taxes on the circulation of goods and services with two new taxes—the IBS (Tax on Goods and Services) and CBS (Contribution on Goods and Services)—the transition from the “old” taxes to the “new” ones is expected to occur gradually. This process is likely to generate more uncertainties than solutions for market operators and, consequently, for taxpayers in the broad agribusiness supply chain.
It seems the tax reform has sought to preserve existing benefits, such as reduced tax rates on inputs like seeds, fertilizers, and other inputs for agriculture. It also aims to maintain the current tax treatment for the income of small and medium-sized farmers and ranchers, as well as for certain other sectors like education and artistic production.
The reform has also introduced the application of the Motor Vehicle Property Tax (IPVA), a State-level tax, to boats, airplanes, and other self-propelled vehicles like tractors and harvesters. Since this is a state tax, its potential impact on the agricultural machinery sector—so vital for farm mechanization and the growth of the agribusiness sector—remains uncertain.
Additionally, the reform includes the concept of a “Sin Tax”, aimed at imposing a selective tax on products deemed harmful to the environment and public health. In practice, this is not entirely new, as it already exists under current legislation, such as the IPI (Tax on Industrialized Products). In this type of taxation, rates are based on the selectivity of industrialized goods, taxing items like cigarettes, alcoholic beverages, and similar products at higher rates compared to basic goods. In theory, this should not affect agribusiness products or their inputs.
In conclusion, the approval of this “Tax Reform” may have missed the opportunity to carry out an effective reform that would harmonize the country’s tax legislation with the international standards of the OECD (Organization for Economic Co-operation and Development). Brazil must achieve this harmonization, particularly to integrate into the organization following the invitation received in 2022. Such integration would better align Brazil’s agribusiness chain with global production chains. It is essential to treat agribusiness and other critical sectors of the Brazilian economy rationally in this context.
Therefore, the reform should ideally address not only the necessary harmonization of Brazilian tax legislation with OECD standards but also the significance of agribusiness in wealth creation, both “inside” and “outside” the farm, to fully achieve the objectives of the tax reform.
“This regulatory framework is expected to positively impact the market…”
AgriBrasilis – Law No. 182/2024 created the Brazilian Emissions Trading System (SBCE), establishing a new regulatory framework. Why was the agricultural sector excluded?
André Passos – Because the sector is part of the solution to the international climate issue, as recognized in the conclusions of all participating countries at COP 28 in Dubai. Therefore, there is no need to impose emissions compensation requirements on the sector. Instead, agribusiness will contribute to reducing greenhouse gas emissions (GHGs) through its own decarbonization instruments, enabling other sectors within the SBCE to achieve decarbonization.
AgriBrasilis – Brazilian agribusiness can trade carbon credits in the voluntary market but not in the regulated market. What are the differences?
André Passos – See the previous answer. Agribusiness can participate in both markets but will not have compensation obligations like other sectors with a “negative carbon footprint.”
AgriBrasilis – How will gains from carbon credit trading be treated?
André Passos – For farmers, these gains will be treated under the same rules as other agricultural income, following the logic of the rural activity cash book.
AgriBrasilis – How will these changes affect financing through FIAGROs and other vehicles?
André Passos – The new FIAGRO regulations introduced at the end of last year allow FIAGROs to trade carbon credits. This regulatory framework is expected to positively impact the market as a whole.
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