Exporters and the soft drink industry criticize the loss of incentives to subsidize diesel.

Alex Rodrigues, reporter for Agência Brasil - The president of the Brazilian Foreign Trade Association (AEB), José Augusto de Castro, said he was surprised by the federal government's decision to reduce the percentage of tax credits granted to stimulate exports from 2% to 0,1% since 2011, when the Special Regime for the Reintegration of Tax Values ​​for Exporting Companies (Reintegra) was created.

"We regret the reduction of Reintegra. The timing is terrible for making this decision, which signals the abandonment of the export sector," Castro told Agência Brasil. "The biggest impact will be felt from the second half of 2019 onwards," he added.

According to the president of AEB, in addition to practically eliminating incentives for exports, the decision condemns the sustainable development of national industry. "It's a decision that distances Brazil even further from global supply chains, removing the competitiveness of our manufactured products. We will transform ourselves into a simple colony supplying raw materials and importing finished products," argued Castro. He said that this week he sent a letter to President Michel Temer and the Chief of Staff, Eliseu Padilha, alerting them to the need for support for export activity.

The reduction in the amount returned to exporters of manufactured goods from revenue earned from sales is included in Decree No. 9.393, published in an extra edition of the Official Gazette of the Union yesterday (30). The measure was adopted to try to compensate for the loss of revenue resulting from the reduction of taxes on diesel oil. The discount of R$ 0,46 per liter of diesel was one of the points negotiated by the federal government with truck drivers to try to end the strike that began on the 21st. The reduction will be in effect for 60 days and will be made possible through the reduction of taxes - PIS/Cofins and zeroing the Cide - and the creation of a diesel subsidy program.

In addition to reducing the Reintegra program, the federal government is awaiting approval of the bill to reinstate payroll taxes for certain sectors of the economy, which is currently being debated in the National Congress. This will also remove tax incentives from the chemical and soft drink industries. In the case of beverages, the rate of the Tax on Industrialized Products (IPI) levied on soft drink concentrates produced in the Manaus Free Trade Zone has fallen from 20% to 4%.

With the reduction in the Reintegra tax rate, the National Treasury is expected to save more than R$ 2,2 billion by the end of the year.

Soft Drinks

In the case of beverages, the existing tax credit for the Import Tax on Industrialized Products (IPI) for soft drink concentrates produced in the Manaus Free Trade Zone will fall from 20% to 4%. The decision is dividing opinions within the sector.

In a statement, the Brazilian Association of Soft Drink and Non-Alcoholic Beverage Industries reported that the details of the tax restructuring measures were surprising.

"The measure has a profound impact on the sector – regardless of whether the industry is located in the Manaus Free Trade Zone or not," the organization argues, asserting that the sector generates approximately R$ 10 billion in federal, state, and municipal taxes and directly and indirectly employs more than 1,6 million Brazilians.

"We understand the serious national economic situation and the deep fiscal crisis facing the federal government, but we believe that nothing justifies the lack of dialogue with the sector," the organization points out, criticizing the "abrupt change in the tax regime for tax offsets" which "threatens investments and even the operation of several industries."

"There is room for dialogue with the industry to restore legal certainty to the intended investments, as well as those already undertaken in the Manaus Free Trade Zone [...] in order to avoid harm to the Brazilian soft drink and non-alcoholic beverage industry and the consequent and inevitable reduction in federal revenue," concludes Abir.

The Brazilian Association of Soft Drink Manufacturers (Afrebras), an entity that claims to represent more than 100 regional beverage manufacturers throughout Brazil, argued that the change in the Table of Incidence of the Tax on Industrialized Products (Tipi) and the consequent reduction in the tax rate will partially correct the existing distortions in the sector.

According to Afrebras' assessment, by allowing companies in the Manaus Free Trade Zone to generate fewer IPI credits to be offset against other taxes owed by their subsidiaries located in other parts of the country, the decree levels the playing field, fulfilling a long-standing demand from regional manufacturers who felt they were being disadvantaged.

"The [taxation] system that was in place has already shut down 160 small soft drink factories in the last ten years," says Afrebras, which claims to have proposed the change to the federal government.