BRASILIA – The collection of the Selective Tax, the so-called “sin” tax, on the extraction of iron ore, oil and natural gas, has the same economic effect as a royalty, admits the extraordinary secretary of Tax reform, Bernard Appy.
The statement corroborates the assessment of the affected sectors, which see redundancy in the surcharge, since they already collect royalties to compensate for the exploitation of natural resources.
“The economic effect is exactly that of a royalty. The question is trying to understand why the Congress placed extraction there, within the scope of the Selective Tax. It was, I suppose, because they understand that extraction activity, that is, digging the land, can have an undesirable effect from an environmental point of view”, says Appy in an interview with Estadão/Broadcast.
“From this point of view, it is understood that the objective of Congress was to burden the extraction itself”, says the secretary, stressing that it was a decision taken by parliamentarians and not by the Ministry of Finance, which only prepared the regulations for the Amendment Proposal to the Constitution (PEC).
Bernard Appy was a great supporter of tax reform before being appointed special secretary
Photo: GABRIELA BILÓ / ESTADÃO / Estadão
Due to this peculiar incidence, tax experts have already dubbed the new rate “selective jabuticaba”, a tax that would only exist in Brazil, with no counterparts on the international scene.
Taxation on extraction was an innovation proposed by senator Eduardo Braga (MDB-AM), who reported the tax reform in the Senate last year. According to the text inserted in the Constitution, the extraction of non-renewable natural resources may be taxed at up to 1%, including when the product is intended for export — which is also criticized by the affected segments, who point out that it is unconstitutional.
In the regulations, the economic team listed three specific products that could be targeted by this Selective extraction: oil, natural gas and iron ore. Asked why the Treasury decided to focus on this specific ore, which is one of the main items in the Brazilian trade balance and responsible for almost 60% of the segment’s revenue, Appy stated that it is “the most relevant in terms of scope and size of the mines “. But he reinforced the caveat that the rate has not yet been defined.
When asked, then, whether this royalty format would be distorting the Selective Tax, which has a regulatory and not a collection function, the secretary assessed that it would not. “Who would want to use a tax for fundraising purposes, the majority of which (60%) of the revenue goes to states and municipalities? It doesn’t make sense,” said Appy, repeating recent statements.
He also considered that, if the Union collects more from Selective and IPI than it collects from IPI today, it will have to reduce the CBS rate, which is the Value Added Tax (VAT) referring to the federal government, whose collection goes 100% to the Union. “In other words, the Union has no interest in using the Selective for fundraising purposes”, he stressed.
The Brazilian Oil and Gas Institute (IBP) estimates that taxation, if taken to 1%, could generate revenue of R$7 billion per year for the government.
Anti-evasion system can reduce VAT rate
According to Appy, the so-called split payment, a payment system that seeks to reduce tax evasion and fraud in the country, could cause the new VAT rate to be lower than the floor estimated by the Treasury, of 25.7%.
According to the economic team’s projections, the average collection of the new tax will be 26.5%, which may vary between the extremes of 27.3% and 25.7% depending on the system’s degree of compliance.
The secretary, however, is optimistic: “It could even be lower than 25.7%, it’s not impossible. We are working with this range based on international parameters, but it could be that the reduction in tax evasion is so great that we are left better than other countries in the world.” According to him, this will be verified during the transition period, which runs until 2033.
The split payment system, which is being developed to comply with CBS and IBS and will be mandatory for most sectors, allows taxes to be paid at the time of purchase. In other words: through the mechanism, the bank separates, at the time of payment, the tax for the government coffers (federal, state and municipal) and the amount allocated to those who provided the good or service.
According to Appy, the mechanism has the potential to put an end to the use of “cold invoices”, made by orange companies to defraud the Tax Authorities, in addition to streamlining and digitalizing processes and ensuring that companies receive their respective VAT credits — without the need for having to inspect the supplier to find out whether or not the tax was paid, which is a major concern for companies.
“For companies, it will be a kind of current account. It will be a sales account, which will show how much tax it owes and how much has already been paid. And a purchases account, showing how much tax has been levied on acquisitions and how much has already been paid. has been paid. They will monitor this in real time”, says Appy.
