November 10, 2015

12% Tax on Grain Exports Proposed by Three States in Brazil

The governors of three Brazilian states, Mato Grosso, Goias, and Tocantins, are contemplating the imposition of a tax on soybeans and corn that is produced in their state and exported out of Brazil. The taxing system in Brazil is quite complicated, but it basically goes like this. Any product that is produced in a state, but consumed in another state, is subject to a circulation tax (ICMS) when the product crosses the state line. If those products are consumed within the state where they are produced, they are not subject to the tax. Each Brazilian state has the prerogative to decide the level of ICMS tax.

Since 1996, grain such as soybeans and corn, were exempt from the circulation tax if the grain was exported even though it crossed state lines on its way to export facilities. Now, the federal government is cutting back on payments to the states due to the growing deficit and these cash-strapped state governments are looking for other sources of revenue. For their part, the governors are defending the idea of taxing grain exports because they argue that it an incentive to do additional processing of the grain within the state.

The level of taxation being contemplated is 12%. That is based on a similar program that has been in place in the state of Mato Grosso do Sul since 2005. In Mato Grosso do Sul the tax is imposed on soybeans, corn, grain sorghum, and cotton. The state government contends that the taxes were needed to guarantee an ample supply of grain for the domestic market within the state.

As you might suspect, there are a wide range of opinions concerning this program in Mato Grosso do Sul and farm organizations feel that it was implemented only to increase the state revenue. Industry representatives feel the implementation of a 12% tax on exported grain would hurt producers who are already suffering from high costs and low prices.

At this writing, these additional taxes are just a proposal and it is unclear if they will become law. I find it very ironic that politicians in Argentina are promising to eliminate export taxes while politicians in Brazil are thinking about imposing export taxes.