Observatory of the Legislative - Analysis of PL 10.272 / 2018

OBSERVATORY OF THE LEGISLATIVE

ANALYSIS OF DRAFT LAW 10272/2018

AUTHORSHIP: Jerônimo Goergen PL 10272/2018

PARTY: Progressive Party

STATE: Rio Grande do Sul

Clayton Vinicius Pegoraro

Elton Duarte Batalha

Maurício Loboda Fronzaglia

Paulo Rogério Scarano

1 - Presentation of the Draft Law 10272/2018

Draft Law 10272/2018 authored by Federal Deputy Jerônimo Goergen (Progressive Party - RS) proposes the definition of limits for changes in the rates of import tax contained in paragraph 1 of article 153 of the Federal Constitution that states: The Executive Branch, subject to the conditions and limits established by law, is allowed to change the tax rates enumerated in items I, II, IV and V "[1]. From there, it is requested to change the rates of the products included in item 22.04 of the Incidence Table of Taxes on Industrialized Products (ITPI), which was approved by Decree 8.950 of December 29, 2016. The item quoted refers to " Wine of fresh grapes, including wine fortified with alcohol; grape must other than that of heading No 20.09 "[2] [3]. The aliquots specified in this code range from 10 to 20%. The proposal calls for these percentages to grow to at least 40%.

It was presented to the Federal House plenary on May 22nd. On June 14, the Board of Directors sent it to the following committees: Economic Development, Industry, Commerce and Services; Finance and Taxation; and Constitution and Justice and Citizenship. The Project is under an ordinary procedure. The designated draftsman of the CDEICS Bill is Congressman Covatti Filho of the Progressive Party, also from Rio Grande do Sul. The deadline for amendments was July 5 without any amendments being tabled.

2 - Legal Analysis

The case under analysis must be observed from the consolidation of the principle of isonomy predicted next to art. 150, II of the Brazilian Constitution of 1988:

"Without prejudice to other guarantees guaranteed to the taxpayer, the Union, the States, the Federal District and the Municipalities shall be prohibited from:

(...)

II - to establish unequal treatment among taxpayers who are in an equivalent situation ... "[4]

Based on this constitutional tax presupposition, it is possible that there is a conflict regarding the competence to tax, as well as the extrapolation of the constitutional isomeric limits, since there is, in theory, a differentiated treatment for grapes and derivatives. Thus, persecution and / or favoritism are avoided.

The provisions of Subsection II of art. 150 of the Brazilian Constitution of 1988 is, to a certain extent, a redundant application of the Principle of Isonomy already provided for in the chapter on the individual guarantees of the 1988 Constitution, as recommended in its article 5, which verbatim brings the idea of ​​full equality, as transcribed:

"Art. 5. Everyone is equal before the law, without distinction of any kind, guaranteeing to Brazilians and foreigners residing in Brazil the inviolability of the right to life, liberty, equality, security and property, as follows:

I - men and women are equal in rights and obligations, under the terms of this Constitution;

II - no one shall be obliged to do or not to do anything other than by virtue of law; (...) [5]

In this sense it is the lesson of Roque Carrazza on tax principles and rules of conduct dictated to the public agents:

"Political people, while taxing, can not act arbitrarily and without any obstacle to taxpayers. On the contrary, in their relations with them, they submit to a rigid legal regime. the rules that convey the fundamental rights and which also limit the exercise of tax jurisdiction, subordinating it to the legal order. It is worth remembering, for example, that, under article 5, XIII, of the CF, laws They can not, even if by an oblique way, compel taxpayers to associate or to remain associated (Article 5, XX, of the CF). exercise of tax jurisdiction ". [6]

Thus, the principle of equality is projected in the national tax field, starting from a general rule of legal isonomy, or principle that all are equal before the law. Therefore, it is presented as a guarantee of uniform treatment by the State and its agents and bodies, whenever equal conditions occur.

It should be noted that this bill, unless it is better judged, produces some discrepancy in the tax treatment constitutionally established by the country's legislature, by having powers that allow unilateral alteration of the tax rate.

3 - Political Analysis

The objective of the bill is very clear in its justification: it seeks to preserve the interests of the wine producers of Rio Grande do Sul. According to the arguments of the proposing congressman, from 2006 to 2017 there was a significant loss in sales calculated in millions of liters. In fine wines this drop was from 22 to 15.6, and for table wines, the drop was from 245 to 173.7. At the same time, there was a significant increase in the import of the beverage: from 51 million liters in 2006 to 126 million liters in 2017, almost half of this increase is due to Chilean wines. These, in addition to the Argentines, are exempted by the Mercosur agreements (Argentina as a member and Chile as an associate).

It is an essential part of political activity to defend the interests of economic groups by their representatives. What is put here is the defense, made by a congressman, of the interests of a specific economic group. Two political problems arise from this action: the defense of corporate interests and the breaking of international agreements. On the defense of sectoral interests we must consider the political gains that could come from the approval of this project. From the point of view of international agreements, Brazil would be in disagreement with the guidelines and rules established by Mercosur, an integration agreement of which the country is a founder and signatory. In addition, the decision can be challenged in the World Trade Organization (WTO) as a practice contrary to the objectives of free trade and the principle of non - discrimination advocated by this entity.

4 - Economic Analysis

Brazil's position in the Fraser Institute's Economic Freedom of the World Index has been declining, and in 2017 it was already in 120th position among 159 economies. Draft Law 10272/2018 is an example of an initiative that contributes to worsen the degree of economic freedom in our country, reaching it by contributing to increase the already high tax rates in force in Brazil, as well as reducing the freedom of international trade when trying to impose import tariff barriers, in the case of imported wines.

In 1776, Adam Smith warned, in the Wealth of Nations, that a nation, by restricting by high customs tariffs the importation of foreign goods, which can be produced in the country, would have three effects: 1) it would guarantee a certain degree of monopoly for the respective industry; 2) it would use resources (capital, land and labor) in the sector that, in the absence of protection, would be used in better alternative uses; and 3) the gains made by the sector would not necessarily be the gains of society as a whole.

Almost two and a half centuries have passed, but it seems we have not yet learned the lesson. Until the late 1980s, national industry in general and the wine industry in particular were extremely protected. However, the national fine wines were expensive and had bad fame and much of the consumption consisted of the so-called table wines, popularly known as "carafe wines", intended for the low-income population. After the opening, promoted in the following decade, the wine industry had to reinvent itself. Perhaps in some segments, in fact, we do not have comparative advantages, most notably in the average wine segment, with lower prices. However, the national industry has found its niches, especially in the production of sparkling wines and white wines, which have been awarded internationally. Such a result would be difficult without the stimuli arising from competition.

The project also tends to create constraints with two important trading partners in Brazil: Argentina and Chile. It is worth mentioning that practically every year, from 2006 to 2017, Brazil achieved significant trade surpluses with both partners. According to COMEXSTAT data from the Ministry of Industry, Foreign Trade and Services, in 2017 Brazil's surplus with Chile was US $ 1,578,751,662 and Argentina was US $ 8,133,629,769 (this figure is almost double that of we import from Argentina).

The justification given for proposing the project is quite questionable, since, in the absence of a foundation in more consistent studies, it seems to be based on conjunctural issues. It makes no sense to compare domestic wine consumption in 2006 amid a period when the Brazilian economy underwent a cycle of expansion with consumption in 2017, the first year after one of the worst recessions faced by Brazil. Moreover, the exchange rate is another circumstantial argument that should not even be considered, since in the same way that a possible revaluation of the exchange rate could negatively affect domestic producers, the intensification of the devaluation since December 2017 has benefited them. What remains of the justification sounds like a mere defense of corporate interests. It is unreasonable to argue that the reason for proposing an increase in import rates is the impact of complex, excessive and dysfunctional taxation on the costs of domestic production. In fact, we should expect our parliamentarians, alternatively, to work to make Brazilian taxation less complex and excessive and more functional. The project analyzed goes in the opposite direction.

We understand that the proposed project hurts economic freedom. The competent national wine producers, who have qualified, sought their market niches, improved their products do not deserve the tutelage that this law imposes. They have grown and are able to compete without having to go back to the period before opening. And the national consumer has the right to choose and to buy the products whose cost-benefit is considered more appropriate.

^[1] Constituição da República Federativa do Brasil. Disponível em https://www2.senado.leg.br/bdsf/bitstream/handle/id/518231/CF88_Livro_EC91_2016.pdf

Acesso em 22 de agosto de 2018.

^[2]http://idg.receita.fazenda.gov.br/acesso-rapido/legislacao/documentos-e-arquivos/tipi.pdf

Acesso em 23 de agosto de 2018.

^[3] O código 20.09 refere-se a “Sucos (sumos) de fruta (incluindo os mostos de uvas) ou de produtos hortícolas, não fermentados, sem adição de álcool, mesmo com adição de açúcar ou de outros edulcorantes”. http://idg.receita.fazenda.gov.br/acesso-rapido/legislacao/documentos-e-arquivos/tipi.pdf . Acesso em 23 de agosto de 2018.

^[4]www2.camara.leg.br/legin/fed/consti/1988/constituicao-1988-5-outubro-1988-322142-publicacaooriginal-1-pl.html

^[5]www2.camara.leg.br/legin/fed/consti/1988/constituicao-1988-5-outubro-1988-322142-publicacaooriginal-1-pl.html

^[6] CARRAZZA, Roque Antônio. Curso de Direito Constitucional Tributário. 11ª ed. revista, atualizada e ampliada. São Paulo: Malheiros, 1998.

^[7] Apenas para uma rápida comparação, utilizando a Pesquisa de Emprego e Desemprego do DIEESE/SEADE, que mantém a mesma metodologia desde sua criação, a taxa de desemprego aberto na Região Metropolitana de São Paulo era de 10,4%, em 2006 e, em 2017, a taxa de desemprego aberto na RMSP chegou a 14,8%.