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Food Taxation in Brazil: Measurement and Social Impacts

Food Taxation in Brazil: Measurement and Social Impacts. LAC Tax Forum The Role of Tax System in Reducing Income Inequality and Promoting Social Cohesion Panama September 16-17, 2010. Topics Measurement of the Tax Burden International Comparison Social Impacts.

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Food Taxation in Brazil: Measurement and Social Impacts

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  1. Food Taxation in Brazil: Measurement and Social Impacts LAC Tax Forum The Role of Tax System in Reducing Income Inequality and Promoting Social Cohesion Panama September 16-17, 2010

  2. Topics • Measurement of the Tax Burden • International Comparison • Social Impacts

  3. 1 – Tax Burden on Foods in Brazil

  4. Indirect Taxes (% of Food Expenditures)

  5. Share of Federal and State Taxes on Food Expenditures

  6. Taxes on Food Expenditures (% of Total Household Current Expenditures)

  7. Main Results • The tax burden on food expenditures is highly regressive in Brazil as a whole. That is, the share of household current expenditures levied by taxes on food consumption is far greater for lower-income families than for higher-income families. This regressivity is present throughout all the states of Brazil. • On average, the tax burden on foods is mostly due to the state sales tax ICMS (56%). However, federal taxes and contributions (IPI, PIS and COFINS) also play a relevant role (44%). • The incidence of four distinct taxes and the diversity of state and federal legislation generate a multiplicity of tax rates. On average, in each state there are 30 possible tax rates applying to food sales.

  8. 2 – International Comparison

  9. Value Added Tax (VAT) on Foods (%) Exceptions: Mexico - Processed foods Portugal – Non-essential foods: 12% Ireland – Ice creams and pastries: 4.4%-13.5% Cyprus – Ice creams, chocolates, pastries and biscuits: 5%-15% Malta – Processed foods: 5% England – Precooked meals, ice creams and chocolates Sources: European Commission (2006) , OECD (2005), FDA (2006)

  10. 3 – Social Impacts of Tax Exemption for Foods

  11. Tax Exemption for Food Expenditures: Predicted Impacts on Poverty and Indigence

  12. Tax Exemption for Food Expenditures: Predicted Impacts on Inequality

  13. Poverty (% of Population) by Region Midwest North South

  14. Indigence (% of Population) by Region Northeast North Southeast Midwest South

  15. Gini Index North Midwest Southeast Northeast South

  16. Main Results • In the ten states that were analyzed, a tax exemption for foods could have significant impacts on poverty (6.6% reduction) and indigence (18.1% reduction). Extending this result to the whole country, 2.5 million people would be brought out of poverty and 960 thousand people out of indigence. This tax exemption would also reduce the Gini index in 0.004 to 0.010 points. • As a comparison, over the entire 2001-2009 period, there has been a 39.7% reduction in the poverty rate, and only a 0.058 point reduction in the Gini index. • Over the entire 1980-2002 period, the decline in the poverty rate has been only 7.1 percentage points, while the Gini index remained stable at 0.60. • Overall, the tax exemption for food sales would bring a substantial contribution to the ongoing endeavors to reduce poverty and inequality in Brazil.

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