Government proposes that ‘sin tax’ be levied on cigarettes, alcoholic and sugary drinks, cars and oil | Economy

The federal government proposed, together with the states, that the selective tax, called “sin tax”, be charged on cigarettes, alcoholic beverages, sugary drinks, polluting vehicles and on the extraction of iron ore, oil and natural gas.

The proposal is included in the draft regulation of tax reform on consumption.

The objective is for goods and services that are harmful to health and the environment to be taxed higher than the rest of the economy.

“This Project specifies the products on which the Selective Tax will be levied, as well as the way in which taxation will be carried out on each category of product. The rates to be applied will be defined later by ordinary law”, says the text of the project.

Therefore, it is not possible to know at this point, however, whether the collection of the sin tax will increase the tax burden (amount charged in taxes) in relation to the current system — in which these products already have higher taxation.

The National Beer Industry Union (Sindicerv), which brings together 85% of national manufacturers, estimates that a can of beer currently contains about 56% in federal and state taxes.

According to data from the Brazilian Institute of Tax Planning (IBPT), the tax burden on the following products is as follows:

• wine is around 44% (national) and 58% (imported).
• vodka and whiskey: 67%.
• cachaça: almost 82%
• soft drinks: around 45%

The National Cancer Institute (Inca) estimated that, in 2017, the tax burden on cigarettes ranged from 69% to 83% of the total price.

According to the Association of Motor Vehicle Manufacturers (Anfavea), The tax burden on cars varies between 37% and 44% of the car’s value.

• Cigarettes: “In relation to smoking products, they are universally identified as harmful to health in a wide range of academic studies. The most widely consumed smoking products are cigarettes. Taxation on these products is a notoriously effective state instrument to discourage smoking. smoking (,…) The Project also proposes that cigars, cigarillos and artisanal cigarettes can have the same tax treatment given to other products”.
• Polluting vehicles: “The incidence of IS (selective tax) on the acquisition of vehicles, aircraft and vessels is justified because they emit pollutants that cause damage to the environment and humans. In relation to vehicles, the proposal is that the tax rates Selective tax is levied on motor vehicles classified as cars and light commercial vehicles and varies based on a base rate, according to the attributes of each vehicle (…) Therefore, the following attributes will be considered for the purposes of the final Selective Tax rate for each vehicle: (i) vehicle power; (ii) energy efficiency; (iii) structural performance and driving assistive technologies; The base rate for each vehicle may be increased or decreased according to the criteria listed above.”
• Alcoholic beverages: “The consumption of alcoholic beverages represents a serious public health problem in Brazil and around the world. Studies by the World Health Organization indicate that this consumption is associated with a wide range of Chronic Noncommunicable Diseases – NCDs, such as cardiovascular diseases, neoplasms and liver diseases Furthermore, excessive alcohol use is related to mental health problems, as well as the occurrence of violence and traffic accidents (…) As the negative effect of alcohol is related to the amount of alcohol consumed, a proposal is made. model similar to that used for tobacco products, whereby taxation will occur through a specific rate (per quantity of alcohol) and an ad valorem rate”.
• Sugary drinks: “There is consistent evidence that the consumption of sugary drinks harms health and increases the chances of obesity and diabetes in several studies carried out by the World Health Organization – WHO. And taxation was considered by the WHO as one of the main instruments to contain sugar In this sense, according to the WHO, eighty-three member countries of the organization already tax sugary drinks, mainly soft drinks. Considering that the economic sector has a structure concentrated on manufacturers and fragmented in the distribution and retail phases, the draft. establishes as taxpayers the manufacturer in the first sale, the importer in the import and the bidder in the event of a public auction”.
• Extracted minerals: “The Project proposes the incidence of IS on the extraction of iron ore, oil and natural gas. The proposal foresees the incidence of IS on the first sale by the extractive company, even if the ore is intended for export. There is also hypothesis of incidence on the non-costly transfer of mineral goods extracted or produced (…) It is planned to reduce the rate to zero for natural gas that is intended for use as an input in an industrial process”.

However, several sensitive topics were postponed until 2024, as the text of the PEC indicates the need to regulate some matters through bills. This is what the government began sending to the Legislature this week.

This first tax reform regulatory project has around 300 pages, 500 articles and several annexes. In addition, it also has eight pages dealing only with the repeal of current rules that will be abolished in the future.

In addition to this project, he said, there will be two others:

• one on the transition in revenue distribution (to states and municipalities) and with issues related to administrative litigation;
• one to deal with transfers of resources to regional development funds and compensation for state losses.

The Treasury’s schedule predicts that the regulation will be carried out between 2024 and 2025. With the end of this phase, the transition from current taxes to the Value Added Tax (VAT) model could begin in 2026 — with no charge cumulative.

According to the proposed amendment to the Constitution (PEC), five taxes will be replaced by two Value Added Taxes (VATs) — with single legislation, one managed by the Union and the other with shared management between states and municipalities:

▶️ Contribution on Goods and Services (CBS): with federal management, it will unify IPI, PIS and Cofins;

▶️ Tax on Goods and Services (IBS): with shared management by states and municipalities, it will unify ICMS (state) and ISS (municipal).

▶️ In addition to the federal CBS and the state and municipal IBS, a selective tax (on products harmful to health) and an IPI will be charged on products produced by the Manaus Free Trade Zone — but outside the region with tax benefits.

The final tax rate, however, will only be known in the coming years — after a testing period has been carried out to “calibrate” the value — necessary to maintain the current tax burden.

The government hopes that, with tax simplification, there will be an increase in productivity and, consequently, a reduction in costs for consumers and producers, stimulating the economy.

• With the implementation of VAT, taxes would become non-cumulative. This means that, throughout the production chain, taxes would be paid only once by all participants in the process.
• Currently, each stage of the chain pays taxes individually, and they accumulate until the final consumer.
• With VAT, companies could deduct, when collecting tax, the amount previously paid in the production chain. They would only collect the tax on the value added to the final product.
• Another change is that the consumption tax (VAT) would be charged at the “destination”, that is, at the place where the products are consumed, and no longer where they are produced. There is a transition period of around 50 years from charging at origin to destination.
• This would help to combat the so-called “fiscal war”, the name given to the dispute between states so that companies can set up shop in their territories. To this end, they intensify the granting of tax benefits.