The Wet Blue taxation affects the rural producer

Nelson Marquezelli
Federal Representative (PTB-SP)

Due to questionable technical pressures and arguments that were never confirmed, since December 2000 the export of hide on Wet Blue stage suffers a tax impact, via Export Rate, which has ranged between 7% and 9% on the FOB exported value. From 2004 to 2006 the incidence rate was 7%, with estimates of gradual decline until it reaches zero percent. None of this happened. The federal government, through the CAMEX, extinguished the decreasing trajectory of the tax, and increased it to 9% from January 2007, finishing the transience and the schedule of reduction, in a never properly understood decision.
Two arguments could be the source of taxation, both of authorship of representatives of the footwear industry. The first concerns the possibility of the Wet Blue hide export affecting the domestic supply of raw material. The second is that the export increases the price of raw materials in the domestic market. Neither of the two arguments, after little more than seven years, finds support in the reality of the Brazilian market. If the arguments can fail, what is the reason for the tax continuation?
According to the CICB – Center of the Tannery Industries of Brazil, in the publication ‘Brazil and the World Leather Market’, ‘the export tax of Wet-Blue makes the prices of leather increase in the domestic market, negatively affecting the competitiveness of the segments that depend on the leather as raw material’. According to the CICB, the price of the green hide in December 2000 (when the tax began) increased from the historical average of the 90’s – about US$ 0.624 cents per kilo – to US$ 0.89 cents per kilo, reaching US$ 1.16 per kilo in May 2007. And it is still high in 2008. As the first conclusion would be expecting that the CICB, which did this study and which signs the conclusions, called for the end of the Export Tax on Wet Blue hide, since it results in an increasing of the domestic price of green hide. In other words, it is not the export that raise prices, but the tax imposed upon it.
For rural producers this sounds very strange, because even with the high of the green hide it is known is that there were no gains in pay at the beginning of the chain. Studies of the National Confederation of Agriculture, an organization that has been advocated the end of the tax, because of its uselessness (from the point of view of trying to prevent the departure of Wet Blue hide), or because of the damage it causes to the rural producer, can show that statement. The extraordinary growth of Brazilian exports of hide – in 2008 it should be around US$ 2 billion – should result, with or without tax on profit for the producer, but this is not the case in practice and gain is appropriate by sequent links in the productive chain. In short, it is not an exaggeration to say that who pays the bill of the Wet-Blue taxation is the rural producer.
Regarding the argument of the possible impairment of supply of leather raw material, the numbers are even more remarkable. The production of bovine hide in Brazil, in addition to imports, minus direct exports of leather, results in an availability of leather which is able to provide the demand of exporting footwear industry and other manufactures, without injury to the domestic market. Moreover, when the incidence began (in 2000), 72%of total of Brazilian footwear exports were leather’s. In 2007, it was only 42%. That is, the footwear industry demands less and less hide for export.
There is no – and there has never been – any reason for the export of Wet Blue hide to suffer any tax impact. On its lifetime the incidence of tax resulted in the transfer of the private segment for the public segment, just for that purpose, of about US$ 300 million. It would not be exaggeration to say that a good part of this feature was extracted from rural producers.
That is a very relevant theme to Brazilian rural producers. It is time for the Parliament to pay a little more attention on it and demand a position from the federal government which can reverse such situation?

 

Revista Courobusiness, Ed. 60 – Set/out 2008.