Threat to Brazil commodities exports passes committee

Lawmakers sitting on a Senate committee in Brazil have passed a constitutional amendment that could trigger a tax on exports of soybeans and other agricultural commodities in a move that the local farming sector says would be disastrous if passed by a full floor vote

Brazil’s CCJ (Constitution and Justice) committee in the Senate approved the amendment to end an exemption for commodity exports from the ICMS interstate commerce tax – effectively a tax on sales and services.

While the amendment’s passage is unlikely in the short-term owing to the strong opposition from the rural bloc in Congress, it is the most serious threat to Brazil’s agricultural and mining output in recent years.

The draft proposed by Senator Flexa Ribeiro from the Amazonian state of Para, which has one of the biggest iron ore mines in the world and is a growing soybean producer, would end the so-called Kandir Law, which was passed as a constitutional amendment in 1996. 

Kandir grants raw and semi-processed commodity exports such as soybeans, corn, sugar, coffee and iron ore an exemption from Brazil’s ICMS tax, which is levied on all interstate sales of goods and services at rates that vary depending on the state.

Leaders of the agriculture sector say ending the Kandir Law would be disastrous for the farm sector, which brought in $71bln in trade revenue in 2016 and has been the main driver of economic growth in 2017.

Brazil’s National Agriculture Confederation which has significant sway in the government, estimated last week that ending the Kandir Law would raise the cost of goods such as soybeans, corn, sugar and coffee at the port by 21%.

The bill has been staunchly opposed by many of the main grain producers’ associations such as Aprosoja as well as export associations such as Anec.

The bill is unlikely to be passed this year, since the year-end, congressional recess will begin on 23 December and the legislative agenda is already full with debate on the pension reform and the 2018 budget.

The bill still faces a tough road ahead and would need to be passed by a three-fifths majority in both houses of Congress to be approved, but if passed, as a constitutional amendment, President Michel Temer would not have veto power over it.