Tax Reform and Foz do Iguaçu – what does this have to do with you? 

By Markson Rangel Silva and Lucas Kerr Oliveira | OPINION 

To begin to address the impacts of the Tax Reform, approved in 2023 and which is only now beginning to show its first effects in Foz do Iguaçu, we need to demystify two common misconceptions: 

The first is that “taxation is theft”, that is, that taxation is necessarily bad and that it takes money from people unnecessarily. In reality, it is important to remember that taxation is a very old technique of collecting what was produced in excess, the “surplus”, and, based on centralization organized by the State, redistributing it to different activities, such as infrastructure works, flood control and irrigation, improving access and means of transport, in short, carrying out public works to serve the population.  

Works that would be impossible to be carried out by an individual or a small group of individuals. This is the nature of taxes that have been around since ancient Egypt – then called Kemet – or Mesopotamia (present-day Iraq) or ancient China, all around 5 or 6 thousand years ago.    

Of course, just because the purpose of taxes is to redistribute the revenue collected to improve people's quality of life does not mean that this goal will always be sought and achieved. In our Brazilian reality, due to the colonial formation of the tax system, it is undeniable how taxes, because they were previously charged indirectly, included in the price of the products we buy, end up penalizing the poorest people, with lower incomes, more than the elite, with higher incomes and purchasing power.  

Unfortunately, in practice, in contemporary Brazil, it can be said that in statistical terms, the tax structure transfers part of the income from the poorest to the richest, and in general terms, from the poorest, black, mixed race, black and indigenous population to the richest and predominantly self-declared white population.  

Taxes should be used to reduce inequalities 

However, the second myth we need to overcome is that taxes are immutable and cannot be used as a tool to reduce social inequalities. On the contrary, taxes should be used to reduce inequalities. Taxation as a fiscal policy cannot be seen as taboo and should, above all, serve a national development strategy, prioritizing resources, infrastructure and services for the most vulnerable population, not only in terms of income, but also in terms of generating opportunities for social advancement.  

In this sense, it is important to highlight the main elements of the Tax Reform approved to date, and the current debate on income tax exemption for those who earn up to R$5, in light of taxing those who earn more than R$50 per month, and especially the super rich. 

The Ministry of Finance highlights the three main objectives of the reform approved in 2023: 

• 1) make the economy grow sustainably and generate quality jobs;  
• 2) reduce territorial inequalities in Brazil; 
• 3) simplify tax collection to facilitate greater understanding of how the tax structure works for ordinary citizens.  

And to achieve these objectives, some changes in practice will be made over the years, as the reform is gradually implemented, such as:  

• 1) The replacement of various taxes ICMS, ISS, IPI, PIS, Cofins¹, by VAT (Value Added Tax); 
• 2) VAT will in turn be composed of Contribution and Tax on Goods and Services, respectively CBS and IBS, with CBS being collected by the federal government and IBS being collected by states and municipalities; 
• 3) VAT will be charged just once, in a simple way, on the municipality that consumes the goods and services, and, very importantly, the redistribution of what is collected will therefore prioritize the municipalities that produce, that is, favoring productive economies. 

As a result of the Tax Reform, it is essential to highlight the GDP growth prospects linked to job creation throughout the production chains, which transforms the distribution potential into power, when we prioritize sectors that generate more jobs and income, such as industry and construction, as indicated in the following table: 

In Foz, IR exemption should benefit more than 45 thousand people 

In the case of income tax, the current proposal for exemption for those who earn up to R$5 per month, while taxing those who earn more than R$50 per month, or R$600 per year, is connected to simplification and fairness in tax collection. In Foz do Iguaçu, it is estimated that this new income tax exemption will directly benefit more than 45 people, while taxation on large fortunes will only apply to the income of the 350 richest people in the city (IPARDES, 2021). In general, there is no room for fear of tax reform, neither about new taxes, nor about the changes it may generate in the city. 

At this point we return to the title of this article, what do we, the residents of Foz do Iguaçu, “have to do with this?” 

Another fallacy that exists in Foz do Iguaçu is that the city has no industries, and that its entire economy is based on trade and services fundamentally linked to nature and tourism. This is a blatant lie, since the majority of the city's Gross Domestic Product is industrial in nature (about 50%), although this is mainly represented by the production of the Itaipu Binational Power Plant.  

In this way, we are indeed well positioned for the new developments in the Tax Reform. However, we can position ourselves even better, targeting both municipal revenue and the effects on the generation of jobs and income for the majority of the population, if we have as a strategic objective the diversification of the productive industrial matrix of the Municipality. 

We are not talking here about ruptures with traditional sectors, such as Itaipu or the services and tourism sectors, but rather about the strategic positioning of Foz do Iguaçu to connect with industrial development investment routes, which, when guided by the incorporation of science and technology, effectively generate more stable and better-paid jobs. These effects can be felt by workers in the sector and also by other employees in the trade and services sectors, who, due to the growth in income in the industrial sector, end up expanding the general salary base of the municipality.  

Programs such as Nova Indústria Brasil (NIB), for example, are extremely important for promoting economic and social development in an economy that is still recovering from the pandemic and facing the risks of instability and unpredictability in contemporary international relations. In this sense, Nova Indústria Brasil indicates 6 missions as central lines of action, focused on the development of:  

• Sustainable Agro-industrial Chains, for food security;  

• Health Industrial Economic Complex, to strengthen the SUS;  

• Infrastructure, sanitation, housing and urban mobility;  

• Digital Transformation of Industry;  

• Bioeconomy and decarbonization for the Energy Transition;  

• Technologies aimed at Sovereignty and National Defense;  

Unique opportunity for the development of Foz 

Source: Agência Gov – Ministry of Health announces record investment of R$657 million in the Health Economic-Industrial Complex (2023) 

We highlight here, for example, the high demand for the SUS in the region, exposed by a population of around 295 thousand inhabitants (IBGE 2022) and approximately more than 450 thousand people registered with the SUS, coming from the entire trinational region, which create a significant demand for various types of health products, many of which could be manufactured in the Municipality.  

Similarly, there are a number of other industries that can be developed here, or can be attracted to the city of Foz do Iguaçu, in strategic areas such as those prioritized for investments by the Nova Indústria Brasil program, with great potential to diversify the productive economy and generate employment, income and development in the region.  

Finally, we highlight that this specific topic, on how the Nova Indústria Brasil program can strengthen Foz do Iguaçu as a regional power, aiming at productivity, revenue, employment and income, will be addressed in a future article.  

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Markson Rangel Silva – Internationalist specializing in economic projects, master's student in Applied Economics (UNILA) and currently coordinator of the UNILA Arandu Postgraduate Association;  

Lucas Kerr de Oliveira – PhD in Political Science, professor of International Relations (UNILA) and currently coordinator of the Center for Strategic Studies, Geopolitics and Regional Integration (NEEGI), coordinator of the Observatory of Energy Geopolitics and the Observatory of Geopolitics of Integration. 

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CMS (Tax on Circulation of Goods and Services), ISS (Tax on Services of Any Nature), IPI (Tax on Industrialized Products), PIS (Program for Social Integration), Cofins (Contribution for Financing Social Security). 

References 

Thomas de Toledo. Ancient Egypt: The Origins of the State, Money and Wage-Earning (2017) 

Indicators of the Municipality of Foz do Iguaçu, Ipardes Notebook (2021) 

New Industry Brazil Action Plan – 2024/2026 (2024) 

Ministry of Finance. Tax Reform – Questions and Answers (2023) 

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