Excise tax refunds can benefit 1 in 3 Brazilians

A system for returning taxes to the poorest people, a mechanism provided for in two tax reform proposals initiated by the Congress, could benefit more than a third of the Brazilian population and reduce inequality with a budget lower than that of the basic food basket.

It would be possible to reach 72.4 million people at the base of the income pyramid with monthly refunds of up to R$ 13.22 per person. This means R$52.88 for a family of four with a monthly per capita income of up to R$178.

The calculations are part of the first phase of the study “Economic and social impacts of the IBS-Customized”, which will be released this Tuesday (9) by the Pra Ser Justo movement, which brings together entities in favor of the unification of taxes on consumption, and was carried out together with researchers from UFMG (Federal University of Minas Gerais).

The cost of the Personalized IBS (Tax on Goods and Services) in this model is estimated at R$9.8 billion per year. This represents about half of what the government does not collect with the exemption of the basic food basket, an exemption that also benefits the richest people and that does not always reach the final price of the product.

In the study, a simulation was performed based on the return model proposed by the CCiF (Centro de Cidadania Fiscal), which collaborated in the preparation of the tax reform of the Chamber (PEC 45).

In this scenario, all families that are part of the Federal Government’s Single Registry for Social Programs receive the benefit. This could be done through an exemption at the time of purchase or later return of the tax.

Two proposals that are in Congress, the PEC 45 of the House and the PEC 110 of the Senate, provide for this mechanism, but do not detail how the money would be returned.

The limit value was calculated based on household spending on essential items in the basic food basket, although the refund applies to the taxation of any product or service with ICMS, ISS, PIS/Cofins and IPI.

For families with monthly per capita income above R$178, but up to half the minimum wage, the return per person drops to 75% of the ceiling value (R$9.25). Above this level, the benefit is 35% of the ceiling (R$4.63 per person), according to the CCiF proposal that served as the basis for the study.

With these levels, the IBS-Custom would benefit more than half of the population in most states in the North/Northeast.

The program could be financed by an increase in the estimated rate of consumption tax provided for in the reform from 24.2% to 24.6%.

This type of mechanism arises from the assessment that it is more effective to relieve the poorest people than to grant benefits to certain products, as is currently done in Brazil.

“The tax relief does not necessarily arrive at the final price. When you return it to the family, it guarantees that the poorest will actually pay less for those products. From a progressive point of view, it is much more effective”, says Débora Freire, professor at the Department of Economic Sciences at UFMG and one of those responsible for the work.

According to the study, the exoneration of the basket reduces the Gini index (international measure of inequality) by only 0.1%. The tax reform has an impact of 2%, a percentage that rises to 3.2% with the return mechanism.

“Exemptions, even for basic food baskets, medicines, in the Manaus Free Trade Zone, have a high cost and a very small reduction or even increase in inequality”, says Marina Thiago, advocacy manager at Endeavor and the Movimento Pra Ser Justo.

“Even if the reform takes away all these benefits, it has a positive distributive impact. When you put the IBS-Personalised in this account, it improves even more.”

According to the study, around 85% of the money would stay with families in the range of up to a monthly minimum wage; 72% would go to black people (blacks and browns) and 57% of the beneficiaries would be women. The North/Northeast would receive 50% of the benefit.

“Generally, when it comes to progressivity, income taxation is discussed more. But it is important to show that, also along this path, we can work to reduce inequality for the poorest families”, says Renata Mendes, leader of Pra Be fair.

She recalls that a similar model was created this year by the government of Rio Grande do Sul, to refund the state ICMS. In this case, a fixed return of R$ 400 per year is made to those who are in the Federal Single Registry.

According to the study by Pra Ser Justo, between 30% and 20% of the state’s population would benefit from the personalized exemption from the five taxes on consumption, the same percentage estimated for São Paulo, Paraná, Rio de Janeiro, Espírito Santo and Goiás.

The work also shows that the tax reform with the return mechanism reduces the prices of the set of items purchased by people with an average income of up to eight minimum wages, offset by the higher consumption of the richest population. Here, the main factor is the adoption of the uniform rate for all goods and services, foreseen in the reform proposals.

“The reform already has an impact on reducing the prices of these people’s baskets. In addition, they will receive this amount back. [dos tributos], which shows how much it is positive for the poorest,” says Marina Thiago.

According to Pra ser Justo, the return of taxes is a recommendation of several international entities. Many countries find it difficult to implement it due to lack of information on beneficiaries. This is not the case in Brazil, which has the Cadastro Único (generally for families with a monthly income of up to half a minimum wage per person or a total income of up to three minimums), which also serves as the basis for payment of the Bolsa Família and other social programs.