It is high time for Brazil to reform its tax system. There is an urgent need to simplify rules, reduce the tax burden, eliminate the perverse subsidies that cause countless distortions and, above all, reduce the regressiveness and socio-environmental injustices. These demands have been on the table since the turn of the century and now, in a context of a deep economic crisis, have become unavoidable.
To prosper in the 21st century economy based on our natural attributes, we need to provide ourselves with the appropriate tools and go far beyond the command and control mechanisms in the socio-environmental agenda. The tax system is one of the main economic tools that can leverage or hamper investments in a new economy converging with our environmental and climate goals. It must be reformulated so that, on the one hand, we can encourage the development of products, services and economic activities with low-carbon emissions and, on the other hand, we stop draining public resources to subsidize those that are heading in the opposite direction and that, in this new economic scenario, result in a competitive disadvantage.
Therefore, we are arguing for a tax system with simple rules and that is socially just, which will lead to a gradual reduction of unjustifiable incentives and tax burdens. At the same time, it allows a transition towards an economy of low carbon emissions that generates more employment and well-being for the population.
For the discussion, we have presented a set of nine proposals that seek to improve the texts under discussion at the Temporary Joint Commission of Tax Reform.
The proposals, managed by a group of 12 civil society organizations (and networks) coordinated within the scope of the Collaborative Advocacy Network (RAC), in collaboration with the work of the environmentalist and green economy parliamentary fronts, the SDGs, indigenous rights and other fronts related to the themes of sustainability and economics, are objective, simple and viable. They adhere to the principles of simplicity, progressiveness and tax neutrality. In other words, they do not imply an increase in the burden or the unsustainable incentives and indicate a tax policy converging with the Paris Agreement (climate convention) and the national policies of the environment, forests, biodiversity and indigenous peoples and traditional populations.
We are suggesting the following: general environmental principles for the tax policy, criteria of climate and environmental governance for the distribution of resources collected by the new tax (IBS), reinforcement of the local climate and environmental governance, taxation without an increase of the tax burden of greenhouse gas emissions and on negative environmental externalities and the prohibition of new incentives that are incompatible with targets for the reduction of CO2 emissions, among other proposals to enrich the discussion in the parliament and to indicate the direction towards a sustainable tax reform.
The pandemic, which has caused a deep and unexpected global recession, accelerated trends that were developing and has brought new needs. The European Union, one of our main trading partners, has approved an ambitious € 750 billion economic recovery plan, which has the objective to “accelerate ecological and digital transitions.” Like the EU, several countries and companies are accelerating their decarbonization plans, in the awareness that the climate emergency is an imperative that we will all have to adapt to. A green economic recovery is in progress right now worldwide and Brazil cannot afford to be left behind.
In this respect, the warning made by 18 former finance ministers and ex-presidents of the Central Bank of Brazil in a recently published letter is important :
“Overcoming the crisis requires that we converge around an agenda that allows us to resume economic activities, address social problems and, simultaneously, build a more resilient economy when dealing with climate risks and their implications for Brazil.”
A document recently published by the World Resources Institute (WRI – Brazil) indicates that it would be possible to increase Brazilian GDP up to 2030 by another R$ 2.8 trillion, with a net increase of 2 million new jobs and a reduction of CO2 emissions of up to 45% in relation to 2005.
Brazil has all the socio-environmental and ecological conditions to adapt to this new global economic scenario and, above all, to stand out in it. We have an immense comparative and competitive advantage in the access to renewable energy sources, an enormous potential to expand the production of food with low carbon emissions, including with “zero deforestation.” We have ample space to develop a biotechnological industry, which offers the world, from biodiversity and traditional local knowledge, products and solutions that have scale and are sustainable in the use of natural resources. Sanitation, waste recycling, biotechnology, agroecological, organic and agroforestry production systems, national and local production of bio-inputs, ecotourism, forest restoration, payments for environmental services, and already consolidated activities such as the production of biofuels and renewable energy (solar and wind), and sustainable and low carbon infrastructure and transport, are just some of the economic activities that compose a “market basket,” a potential “green” CNAE (National Register of Economic Activities), with a high perspective for the generation of sustainable economic prosperity.
In view of these challenges, today we have published the set of 9 proposals with the Environmental Parliamentary Front of the National Congress. We are available to Federal Deputy Agnaldo Ribeiro, the coordinators of the abovementioned parliamentary fronts and the members of the Joint Commission of the National Congress to discuss and build together a path that places Brazil back on the track to sustainable prosperity.
Synthesis of the Nine Proposals for a Sustainable Tax Reform
1: GUARANTEEING SOCIO-ENVIRONMENTAL PRINCIPLES IN THE TAX REGIME
Ensuring that the current reform of the National Tax System is in harmony with sustainable socio-environmental principles and with the constitutional provisions already established in this regard. The principles to be integrated are those of prevention, of the polluter-payer and the protector-receiver. The harmonization between them occurs through the differentiated tax treatment according to the environmental and climatic impact.
2: IMPROVING LOCAL CLIMATE AND SOCIO-ENVIRONMENTAL GOVERNANCE – ECOLOGICAL IBS
Creating a mechanism, within the scope of the funds raised by the tax on goods and services, for compensation and financial transfer to the municipalities (inspired by the ecological ICMS), which encourages good results in local climate and socio-environmental governance taking into consideration indicators of biodiversity (indigenous lands, conservation units and remains of native vegetation), improvements in the indicators of sanitation and solid waste management and performance in the management, mitigation and adaptation to climate change.
3: ENCOURAGING “SUSTAINABLE” REGIONAL DEVELOPMENT
Encouraging the creation of a fund, the sustainable regional development, the fight against social and regional inequalities and the national integration by means of the direct promotion of productive activities or investments in a sustainable economic infrastructure and that are convergent with the national policy of climate change and that benefit indigenous peoples, traditional local populations, small and micro-entrepreneurs and family farmers.
4: GUARANTEEING THE FULL MUNICIPALIZATION OF THE ITR AND WITH CIDE LAND USE TO ENCOURAGE THE PRODUCTIVE AND SUSTAINABLE LAND USE
Adapting the current ITR by granting it a fundraising function for the municipalities and instituting CIDE land use, with an extra-fiscal function (without a fundraising function) to discourage the unproductive and unsustainable rural land use.
5: TRANSFORMING CIDE-FUELS INTO CIDE-CARBON OR CIDE-ENVIRONMENTAL
Improving the range, incidence and effectiveness of CIDE, seeking to combat the emission of pollutants, defending the environment and ensuring climate stability, in compliance with item VI, article 170, and article 225, of the Constitution.
6: SPECIFYING ENVIRONMENTAL EXTERNALITIES FOR SELECTIVE TAX COLLECTION
Improving the proposal of the federal selective tax, explaining the incidence on environmental externalities. The law that will regulate the tax may guarantee its selective incidence on products and services that, measurably, harm or may harm health, the well-being of the population, the climate or the ecologically balanced environment.
7: OFFSETTING TAXATION ON GREEN ECONOMIC ACTIVITIES
Ensuring that a differentiated treatment is given to producers and service providers that effectively contribute to the climate and sustainability in Brazil, through the partial reimbursement of the IBS paid for activities considered, according to the law, as “green” or sustainable (with the creation of a National Register of Green Activities – “Green CNAE”).
8: PROHIBITING THE GRANT OF BENEFITS TO INTENSELY POLLUTING ACTIVITIES
Guaranteeing the premise that tax benefits and subsidies will not be granted to high carbon-emitting activities in Brazil, by express prohibition in the Constitution.
9: DIFFERENTIATING THE GRADUAL ELIMINATION OF SUBSIDIES
Eliminating with differentiated and progressive time periods, the incentives granted to sectors in accordance with national and international forestry, climate and socio-environmental policies, i.e., those less intensive in carbon emissions.