February 16, 2016
State of Goias Authorizes a Tax on Grain Exports from the State
The state of Goias, which is located in central Brazil and is the fifth largest grain producing state in Brazil, has passed legislation authorizing the imposition of a tax on soybeans and corn that are exported from the state. The tax is actually a circulation tax called ICMS that is imposed on products that are produced in one state, but utilized in another state. Since 1996, soybeans and corn that were exported from Brazil were exempt of the ICMS tax, but the state legislature has now removed that exemption. Each state in Brazil is allowed to determine the amount of ICMS tax, which generally is in the range of about 9% to 12%.
The details of the new tax have not been announced other than the fact that it will take effect sometime in 2016, so it is not actually one hundred percent certain that the tax will be imposed. The Department of Revenue for the state has indicated that the amount of tax may be adjusted depending on "local and external economic circumstances." The state contends that it needs the additional revenue from the tax in order to maintain and improve the infrastructure in the state.
Needless to say, all the producer organizations in the state are opposed to this legislation and they are pressuring the state to not go forward with imposing the tax.
The Soybean and Corn Producers Association of Goias (Aprosoja-Go) maintains that it will make their grain less competitive compared to neighboring states. The Agriculture and Livestock Federation of Goias (Faeg) predicts that grain companies will seek to purchase grain from other states that have not imposed this additional tax. This in turn, will increase the supply of grain in the local market which will drive down grain prices.
Agricultural organizations in Brazil view this as extremely prejudicial for producers and they are scheduled to meet in Brasilia this week hoping to thwart the implementation of this additional tax. These organizations include: Aprosoja-GO, Aprosoja-Brazil, Faeg, the Agricultural and Livestock Federation of Brazil (CAN), the National Grain Exporters Association (Anec) as well as other state and national organizations. They also want to dissuade other states from doing the same thing.
These organizations are collectively opposed this legislation because it is an infraction of the Kindir Law which was created in 1996. The Kindir Law exempted grain exports and other exported products from the ICMS tax as a way to promote exports that in turn would promote agricultural production in Brazil. These organizations credit that exemption as a key factor in the 5-fold increase in agricultural production in Brazil over the last 20 years.
The president of Aprosoja-GO finds it very ironic and disheartening that his state is going "backwards" by proposing a policy similar to what President Kirchner had imposed in Argentina. The Kirchner administration in Argentina had imposed a 35% tax on soybean exports, 32% on soybean meal, 32% on soybean oil, 23% on wheat, and 20% on corn. These regressive taxes, as well as other anti-export policies, were credited with declining grain production in Argentina at a time of increasing world demand. It is especially ironic since Argentina's new president recently reversed course on all of these policies when he took office last December.