Why Appy's cashback is better than exempting basic food items from taxes.

 Secretary of Tax Reform at the Ministry of Finance, Bernard Appy said on Tuesday (15) that the government's proposal to make the collection of consumption taxes fairer will adopt a cashback - return - of taxes to low-income families.

In other words: a low-income person buys a product and provides their CPF (Brazilian taxpayer ID number) at the time of the transaction. The government will verify the tax charged and refund the amount to the buyer up to a certain limit.

Appy has long advocated for this model, believing that refunding taxes is better than exempting them, particularly in the case of consumption taxes. In November, he explained to this columnist: “We propose a system we call personalized exemption. Instead of exempting goods, money is returned to low-income individuals. You collect at a higher rate and return the money levied on consumption to low-income people, obviously up to a limit to prevent fraud. From a distributive point of view, this system is much more efficient than exempting basic goods from taxes.”

The advantage of the cashback model over tax exemptions for basic food items seems clear. If we consider the latest family budget surveys, we will notice that families with incomes above 25 minimum wages per month consume, in absolute terms, three times more basic food items than families with incomes up to two minimum wages. Therefore, when basic food items are exempted from taxes, although the benefit is greater for the poor in relative terms, in absolute terms more money is being given to rich families than to poor families.