cash back in the box

The coordinator of the Tax Reform Working Group in the Chamber, Deputy Reginaldo Lopes (PT-MG), has defended tax cashback as a good alternative to reduce the burden of taxes for the low-income population. The idea is that when buying items from the basic basket, the buyer registered in the CadÚnico or exempt from Income Tax (the criterion is not yet defined), would receive the amount paid for taxes back in their account, at the time.

I talked to the deputy about operationalization, he said to me: “Haven’t you already bought something in the store and it gives you cashback? You buy, give the CPF and the credit goes to your account, it has to be automatic, it cannot be from here a month ago”.

The discussion, however, is still in the field of ideas, technical design and political debate. Everything still needs to be discussed and approved by parliament, and the proposal may even be discarded. But support for her has grown.

In a public hearing of the reform WG this Wednesday (8), the secretary of the Ministry of Finance for tax reform, Bernard Appy, reinforced the defense of cashback, saying that it is a fairer and easier to implement system.

The mechanism is not new, it is already foreseen in the tax reform report presented by deputy Aguinaldo Ribeiro (PP-PB) in May 2021, in the joint committee of the past legislature and in the report of PEC 110/2019.

The text points to the return of the tax to low-income families, financed by an additional IBS rate (unified tax that will be created in the reform), charged by the Union.

What is the advantage of cashback?

Taxation on essential goods, such as food, is still high in Brazil, and those who earn less end up committing an important part of their income to these taxes. The correction of this is what is called system progressiveness.

Another option to reduce this burden on the poorest is to exempt essential items, but the exemption ends up benefiting everyone, even those who do not need it. The exemption for all also takes resources from the government’s cash, which could be used for public policies and social programs. The cashback would avoid the waiver of revenue for those who can afford it.

Bernard Appy spoke about this: “According to the family budget survey, families with income above 25 minimum wages consume 3 times more products from the basic food basket than families with income of up to 2 minimum wages”.

What are the disadvantages of cashback?

The operationalization has to be well done, so that the tax is effectively returned to those who need it. I questioned Deputy Reginaldo Lopes if it wasn’t a complex design, he disagreed: “Today with information technology it’s simple, it falls right away. by CadÚnico. We still don’t know if it will be up to 2 minimum wages, everything still needs to be discussed”.

If the criterion is CadÚnico, the system will benefit the 35 million people who are currently enrolled.

Cashback would be valid for which products?

The current proposal is to have cashback only on basic basket items. When buying these items, the low-income population would pay the full amount, and would receive a refund of taxes, or part of them, in their bank account. The government also wants to reduce the tax on Health and Education, but for these two areas it can be done at a different rate.

Who is against the idea?

The agribusiness sector is opposed to cashback, and prefers exemption from the basic food basket (which makes products cheaper for everyone). In a debate in the Chamber, the president of the Agribusiness Parliamentary Front, deputy Pedro Lupion (PP-PR), defended the maintenance of the exemption for the basic food basket. The secretary of the Ministry of Finance for tax reform, Bernard Appy, countered: “I want to return the tax corresponding to spending on the basic basket to the poorest. The effect of this is greater than exempting the basic basket, a focused measure. product, relieves the person”.

Will the text of the tax reform already bring the details of the cashback program?

No, the text of the PEC (proposed amendment to the Constitution, first phase of the reform) will give the command, and the rules will be defined in a complementary law, as Reginaldo Lopes explained to me.

“You have to see the size of the purchase, what the buyer’s income is, if it’s from the single register, if it’s in the range of two minimum wages. Nothing has been designed yet, it’s all thesis. Because it’s all by Complementary Law”.

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