Brazil’s rural producers frown on tax reform proposal

Brazil’s long-awaited tax reform is a top priority for the federal government, even more so after the Finance Ministry unveiled its fiscal framework proposal last week. 

But for the plan to work, the government needs to increase revenue, and Finance Minister Fernando Haddad has indicated that one way to do that without raising taxes is to eliminate tax breaks for certain sectors and overhaul rules to bring symmetry to the Brazilian tax system.

But that’s not welcome news for agribusiness.

Core agriculture and livestock production accounted for 7.9 percent of the country’s nearly BRL 10 trillion (USD 1.97 trillion) GDP in 2022. However, agribusiness accounts for 24.8 percent of Brazil’s GDP when the entire value chain is considered — inputs, industrial processing of plant and animal products, agricultural services, and trade activities related to the sector. 

The figures come from the Center for Advanced Studies in Applied Economics at the University of São Paulo (Cepea) and the country’s agriculture confederation CNA.

The tax burden on agriculture and livestock is estimated by the CNA to be about 1.5 percent. The entire agribusiness value chain, however, pays much more: 19.3 percent, according to 2020 data assessed by consulting firm LCA. 

Still, all these figures come from sectoral entities and must be taken with a grain of salt. Many of them point to the sector that collects the tax, not necessarily the one that pays it. 

“This is the case with [agricultural social security contribution] Funrural. When selling a sack of grain, for example, the small rural producer pays 1.5 percent of that sale as Funrural. The company buying the grain, usually an intermediary or even an agro-industry, has to withhold the tax. At the end of the chain, the industry appears as the final collector, but the rural producer is the one who actually pays the tax,” explains the CNA’s chief economist, Renato Conchon.

Still, Mr. Conchon acknowledges that agribusiness pays less in taxes than other important sectors of the economy, particularly manufacturing, which pays more than 30 percent.

“But simply using those numbers to justify the quest for more symmetry is an oversimplified and false narrative. The debate must evolve quickly to discuss what is...