São Paulo's agricultural sector demands tax exemptions from the state government

A document drafted by many people by the agricultural sector of São Paulo, requesting the maintenance of ICMS tax incentives, was filed with the Civil House of the state government by the director-secretary of the Federation of Agriculture and Livestock of the State of São Paulo (Faesp), Márcio Vassoler. In the joint note, the entities point out to Governor Tarcísio de Freitas the risks of increasing the costs of rural producers, which causes many companies to be attracted by other states, in addition to the increase in unemployment, not only in the countryside, but also in the cities.

The entities met last week at Faesp headquarters to discuss the concerns of each sector, from the area of ​​fertilizers and agricultural pesticides, which are essential for production performance, primary production to industry and commerce. Inputs and products that are currently exempt, such as fruits, vegetables, flowers and eggs, and other basic food items, dairy products, meats and food products that have significant tax reductions, may be taxed at up to 18% starting in January, if the exemptions and other ICMS incentives cease to exist.

Vassoler recalled that the governor has always been very sensitive to the demands of the agricultural sector and the expectation is that he will reevaluate the measure. “Rural producers and the entire agricultural chain are apprehensive about the change in the ICMS rules. This document is a warning about the impacts that the measure could have on the sector, which is one of the pillars of the São Paulo economy. We are confident that, given the exposure, there will be a reevaluation of the measures,” he stressed.

Tirso Meirelles, president of Faesp, points out that the document delivered to Governor Tarcísio, who has done excellent work with the entire agribusiness production chain, presents important data that will allow him to take a different view of the issue. “With this demonstration of the increase in costs, food prices and the difficulty of food security, he will have the sensitivity to find the best possible way to minimize any harmful effects on the sector,” said Tirso.

The document was signed by entities such as Faesp, the Brazilian Agribusiness Association (Abag), the Association of Peanut Producers, Processors, Exporters and Industrializers of Brazil (Abex-BR), the Brazilian Association of Plant Nutrition Technology Industries (Abisolo), and others. 

Read the full document

Joint Note from Agro Paulista

The importance of maintaining ICMS tax incentives for agribusiness in São Paulo

His Excellency Governor of the State of São Paulo

Mr. Tarcisio Gomes de Freitas

The agribusiness sector of São Paulo, represented by the undersigned entities, hereby expresses its deep concern before Your Excellency regarding the possible termination of the tax incentives currently in force in the State. Maintaining these incentives is essential to ensure the competitiveness, sustainability and development of the sector, in addition to guaranteeing the preservation of investments and the generation of jobs and income in various regions of the State.

The recent approval of Constitutional Amendment 132/2023, which establishes the principle of taxation at destination, represents an important step forward in the modernization and balance of the national tax system. However, withdrawing tax incentives for agribusiness in São Paulo, at this time of transition, would be a setback, contradicting the logic of the reform. Ensuring legal certainty and investments that drive economic development and generate gains for the State is vital to increasing revenue, especially during the period of adaptation to the new tax system.

Other states have maintained and even expanded their tax incentives with the aim of attracting investment to the agricultural sector, strengthening and expanding agro-industrial activities and ensuring the competitiveness of their regional economies. In this context, eliminating tax incentives in São Paulo would weaken the state's position in the national agribusiness scenario, which we cannot allow.

The ongoing discussions within the scope of the Expenditure Quality Assessment System, which suggest the review or elimination of tax benefits, increase our apprehension. It is important to remember that the fiscal adjustments made in 2020 had a significant negative impact on the sector, which was only reversed after mobilizations and intense negotiations with the state government. Currently, several segments of the São Paulo agricultural sector, such as producers of inputs, food and energy, depend on these incentives to maintain the viability and competitiveness of their operations.

Agribusiness is one of the pillars of the São Paulo economy, representing around 13,5% of the state's GDP, generating 14,3% of formal jobs and accounting for 17,2% of Brazilian exports in the sector.

Failure to extend tax incentives will result in a drop in production, increased costs in the production sector and reduced margins for producers. Furthermore, the adoption of an isolated tax policy by the state of São Paulo will cause a loss of competitiveness in relation to products from other states, comparative distortions, a worsening of the business environment and doubts about the viability of investments in the state during the transition of the tax system. This is an unfavorable scenario that puts the food supply and food security of millions of citizens at risk.

A possible 12% ICMS charge on electricity consumed on rural properties, currently exempt until December 31, 2024, for example, is a cross-cutting measure that will affect small, medium and large producers, with the greatest impact on segments where electricity has a greater impact on the cost of the activity, such as the production of eggs, poultry, milk and fish. The charge will also affect producers who produce in greenhouses and irrigate, such as irrigated rice and beans that make up the basic food basket, in addition to fruits, vegetables and flowers.

According to calculations made by some of the signatory entities of this note, in a possible scenario where the exemption on inputs ends, the estimate is that there will be a 16,3% increase in the price of these products, which would lead to an increase in production costs in the state of São Paulo of around R$1,5 billion. As an expected effect, the increase in production costs for the products would be: +6,3% for beans, +5,6% for onions, +5,4% for soybeans, +4,6% for tomatoes, +3,9% for oranges and +3,5% for potatoes.

Therefore, consumer prices will also tend to rise, producing an estimated impact of 6,48% on price inflation in supermarkets in the state of São Paulo, with the final impact on families being around 9,9%, especially for those with lower incomes, who have a greater commitment of their family budget (20% to 25%) to food.

The price of food and, consequently, the purchasing power of families, will be affected by the increase in production costs resulting from the collection of ICMS for products currently exempt, for those that will have their calculation base recomposed and others that will lose credits granted, with the application of the full rate of 18%.

In view of the above, we request the Governor to maintain tax incentives for agriculture until December 31, 2032. We advocate maintaining the ICMS exemption on electricity, agricultural inputs, fruits and vegetables, including those subject to minimum processing, flowers and eggs, pasteurized milk, rice and beans, as well as reducing the calculation basis and credits granted to basic food basket products, meats, long-life milk, dairy products and the food industry, among others, listed in the Single Annex.

This period will allow for an adequate transition to the new tax regime, avoiding economic distortions and social impacts, not only in the agricultural sector, but also in all sectors related to the agribusiness production chains.

In short, the extension of tax incentives will provide legal certainty, stimulate new investments and guarantee the competitiveness of São Paulo's agribusiness, aligning with the needs of the sector and the development of the State.

Respectfully,

São Paulo, November 06, 2024.