Tax exemption on export of primary products

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By JOÃO CARLOS LOEBENS*

Rich countries, during their development phase, taxed the export of primary and semi-processed or industrialized products

It seems like a dogma of faith to see how the mainstream press, renowned economists and people in general (who rely on this press) repeat that taxes should not be levied on the export of primary products, as in the case of iron ore. I say “dogma of faith” based on belief, and not on the use of reason and argumentation.

Countries today considered developed or rich, during their development phase (wealth generation), taxed the export of primary and semi-processed or industrialized products. After reaching the developed country stage, as a logical consequence, these countries begin to export mainly industrialized products.

Industrialization generates jobs, income and wealth. Industrialized products are worth much more than primary products, and therefore can be exported tax-free, because they have already generated employment, income and wealth (for employees and entrepreneurs).

Now let's think about the difference between the economy of already developed/rich countries and still underdeveloped/poor countries.

Developed countries start to export mainly industrialized products and import primary products, which are the raw material for industrialization. It is easy to see the interest of industrialized countries: buying cheap raw materials, aiming to keep profits as high as possible.

That is why industrialized countries, the press (paid for advertising by large companies) and renowned economists (employees of large companies in rich countries) defend “tooth and nail” that there should be no taxation on the export of primary products, as it is of a public policy “for others” to obtain cheap raw materials “for themselves” (rich countries), increasing their profits. The book Kicking the ladder, by South Korean economist Ha-Joon Chang, might be a good read on this topic.

Underdeveloped or poor countries need to industrialize, a process that requires investments (application of resources). The export of iron ore, for example, should be a source of resources for the industrialization of Brazil, remembering that we are the third largest iron producer in the world!

Unfortunately, since 1996, with the Kandir Law of the Fernando Henrique government, iron exports have stopped paying taxes. With this, we destroyed the steel industry, mainly in Minas Gerais, and today we exploit the iron deposits of Carajás in Pará, producing holes, pollution and poverty.

Recently, a businessman from Rio Grande do Sul complained about steel products imported from China, requesting help from the federal government to preserve the national market. What a shame they didn't realize sooner the “belief” that underpinned the Kandir Law in the 1990s, favoring rich countries and harming Brazil.

The tax reform approved by the Chamber of Deputies could have been a great opportunity to correct this decades-old tax and economic error of the Kandir Law. Unfortunately it wasn't... and it looks like it won't even be in the Senate. Vale do Rio Doce, the largest iron ore exploration company in Brazil, is one of the “authors” of the Reform, through the sponsorship of the Fiscal Citizenship Center (www.ccif.com.br), and probably one of the biggest beneficiaries of the reform (receipt of tax credits).

But who knows, hope is the last to die... iron ore exports must pay tax!

*Joao Carlos Loebens is a doctoral student in economics and tax auditor at the State Revenue Service of Rio Grande do Sul.


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