Land Tax: proposal to improve ITR may generate more resources to the cities

Brazil is failing to collect more resources to invest in its cities, it is what the newest study carried out by Instituto Escolhas and released this Wednesday (04/10) in the audit of Folha de S. Paulo. The publication “Rural Property Tax: tax justice and environmental incentives” was carried out in partnership with the researchers of the Laboratory of Soil Use and Conservation Planning (GeoLab) and Group of Public Policies (GPP), both of Esalq/USP, the economist Bernard Apply and jurist Carlos Marés with the purpose of proposing the update of the parameters for collection of the land tax in Brazil, which is very negligible under the fiscal point of view and very ambiguous under the extra-fiscal point of view.

That because ITR has as calculation base what is called Bare Land Value (VTN), that is, the market value of the real estate property excluding the values of the constructions, facilities, improvements, permanent and temporary cultures, planted forests, and cultivated or improved pastures. Additionally to the fact it is a difficult calculation to make, VTN is declared by the land owner himself, and it generates a depreciation in the value. Also, ITR little complies with its extra-fiscal function, which is of promoting the productive use of land, since the productivity indexes used as base for the calculation are obsolete. It is the case of the Livestock Capacity, which establishes the minimum indexes of productivity of the activity, oner of the collection bases of ITR and is not updated since 1980. It is applicable to remind that the livestock is one of the most relevant sectors of Brazilian economy, being liable for 23% of the country in 2017, according to the National Confederation of Livestock (CNA).

To have an idea, although there are more than 5 million of rural real estate properties in the country, only R$ 1.5 billion in ITR were collected in 2018 (less than 0.1% of the revenue of taxes of the Federal Government), a value much below of what is generated with the Urban Property Tax (IPTU), for example, which in the same period, only in the city of São Paulo, resulted in a revenue of R$ 9.94 billion.

In practice, until today a more accurate collection of ITR is not applicable and, recently, the Federal Revenue established more realistic criteria to the collection of such tax through the Normative Instruction no. 1.877, determining that the analysis of lands may only be made by a technician legally qualified and linked to the Federal Council of Engineering and Agronomy (Confea) and Federal Council of Engineering and Agronomy (Crea), which may reduce the subjective character of VTN from now on.

In his opening speech, Ricardo Sennes, chair of the Board of Directors of Instituto Escolhas, praised the relevance of the theme and said that it is the role of the organization, which is always likely to take a careful look at the social-environmental question qualifying the discussion in order to better support the decisions around public policies. According to Natalia Nunes, scientific coordinator and one of the people in charge of the study, the differential of such research was the multidisciplinary team involved in its preparation, which presented a new proposal of revision of the tax supported by a technology that spatially models simulations of a collection potential of ITR.

The main data of the study were presented in the roundtable that counted on the participation of Natalia Nunes (Instituto Escolhas), Carlos Marés (lawyer), Bernard Appy (Economist), Gerd Sparovek (Geolab/Esalq), and Arthur Fendrich (Geolab/Esalq).  The study points out that ITR has a great potential to contribute with the fiscal effort required so that Brazil puts its account up to date, since its update would inject up to R$ 16.8 billion in economy.

Results and Scenarios

The result outlined three possible scenarios where it is estimated an increase of collection of ITR to 5.8 billion in scenario 1, when it passes to use the market value of land for collection of ITR keeping the current legislation, which would already be 4.3 billion more than the ITR collected in 2018; to 14.3 billion in scenario 2, when in addition to use the market value of land, it adopts a new Table of Livestock Occupancy, which would be 12.8 more than the last collection; or even the total of 16.8 billion, scenario 3 that collects more, where both previous measures and a new economical formula to calculate the tax are adopted, such latter corrects distortions of the collection, scenario that would bring a gain in relation to the last year of 15.3 billion. That is, in the three scenarios, Brazil would pass to collect more with ITR than it collects today, something that would be essential to the city halls, since at least 50% of the revenue of ITR are intended to the cities where the property is.

The update of the Table of Livestock Occupancy carried out by the study proposes that the average value passes from 0.56 cattle unit per hectare to 1.37 unit per hectare, which means to consider that the productivity capacity of land increased twice and a half since 1980. But the new formula to calculate ITR is from a minimum fixed rate (0.2%) to all properties – which reinforces the function of ITR as tax that is levied on the property, as well as IPTU.

By the current rule, who has a total area of the real estate property over 5 thousand hectares, which degree of use thereof is up to 30%, such owner, in thesis, should pay a rate of 20% of the calculation base. “We shall finish the unreal rates, no real estate property in Brazil pays such 20% of tax. In relation to the use of land, only livestock is considered productive activity at the time of applying the collection of ITR today, putting aside who keeps native preservation areas or who allocates a part of the land for the installation of wind power plants, for example’, said Bernard Appy. According to him, “we are not in fact assessing the property. In practice, we are not inducing it to be occupied in a productive manner either”, he affirmed.

According to Carlos Marés, “the self-declaratory character of the tax is a problem, there are no parameters so that such collection exists in a fair and honest manner today. The market value of the real estate property is that it should be being considered, even though it has different values, since there is a market base to estimate such value. Additionally, the inspection has failures. Today, we have a base around R$ 3.00 per hectare, which is much little considering a country as Brazil”, he said.

The study also showed that there are areas of public land with registrations of declaration of ITR. To Marés, it is what is called taxation of possession, upon the payment of the tax and even the registration of CAR (Rural Environmental Registration) generates documentation and judicial evidences of the possession, even if it is fruit of land-grabbing. “Who produces through usucaption, that is, someone that gives social function to land, even if he/she does not have it on a legal basis, is also benefited by such legal documentation”, he explained. Gerd affirmed that ITR collects a little, but, in fact, the taxation of the possession is something that needs to be discussed, since it is paid more where there is a low index of title, something that would have already commented by jurist Carlos Marés. “The registration of CAR is a way of consolidating such formal title and have more access to credit, but the land squatter pays ITR and makes CAR to officialize his/her title of land, the tax serves, therefore, as instrument of affirmation of the ownership. The tax is failing in such aspect”, said the professor.

In such sense, Gerd Sparovek and Arthur Fendrik, of the Laboratory of Soil Use and Preservation Planning (Geolab/Esalq USP), affirmed that the study contributes to a better accuracy in the inspection, since it estimates the potential of collection of the tax after checking in a more approximate manner the real estate property, being able, including, to compare the value self-declared by the owner (VTN). According to Sparovek, after CAR, today we have conditions of having a piece of land information much more complete in Brazil. “There is a land emptiness around 17% in the country, with the simulated modeling we made, we were able to go deeper up to the property, we did not stop only in the city anymore. It was possible to see in large scale, something compared to the discovery of the microscopy. The agent is able to make a very complete zoom today. Such matter of investigating the rural property is a new area to the laboratory, and the challenge of composing the team of the study coordinated by Instituto Escolhas was accepted because there was the understanding of raising such question, which is a bottleneck to the tax justice in the country”, he affirmed.

Appy emphasized that the study attempted to meet three purposes. The first was to rethink the legislation to make it more adequate, able to mitigate the problems the tax currently has, making the ITR more compatible with what it needs to be. The second is to point out the need of update of the livestock indicator, which is extremely outdated. The third is to let a proposal available, which is not the definitive one, but a kick-off of what needs to be made. “The study released today was not carried out to increase the Brazilian’s tax burden, but let the tax more efficient and fairer. Let it more productive, better under the point of view of the environmental policy and occupancy of the soil, so reducing the pressure for deforestation”, the economist explained, one of those in charge of the technical performance of the work.

But in the second half of the event, the discussion generated on how such changes in the collection of the tax impacted the country and the farming sector. The roundtable was composed by Luís Carlos Guedes Pinto (former minister of Agriculture), and Laura Antoniazzi (Agroícone), with moderation of Sergio Leitão (Instituto Escolhas). Recent data of the Ministry of Agriculture published on magazine Agronalysis of Fundação Getúlio Vargas show that the Brazilian farming product grew more than four times between 1975 and 2016, which certainly contributes to the valuation of the land prices that increased 308% between 2002 and 2013.

To Laura Antoniazzi, the theme ITR is little discussed, but may generate good economical incentives through the analyses that were made in the study. “Stimulate the compliance with the environmental legislation is an essential point, but we need to know how it may impact the cost of production of the typical farming or of the typical soy, or even under the farmer’s point of view. Additionally, another point that may be very significant is in the generation of revenues for the cities, especially those that are toward the agricultural production that face difficulties in carrying out such collection”, affirmed she who is also agronomic engineering and master in economics by Esalq/USP. Laura believes that the agricultural sector needs to participate in such discussion and not be resistant for thinking that it will only increase the tax burden. “We need to dialog more with such sector so that everybody understands the importance to inspect, even if to be able to receive 100% of ITR by the city halls, since it is a very small base that pays, and it is scaring to notice that they do not reach nor even 2 million of payers”, she affirmed.

Appy highlights that discussing such argument where the taxes may encumber the producer is important provided that the profiles of each of the producers are defined. “We notice that there are rural owners that may pay more than others. So I ask: what is a fair system? What is declared should be checked and compared via geo-referenced data”, she said.

But the former Minister of Agriculture, professor Luís Carlos Guedes Pinto said that the tax problem of land in Brazil comes since the Sesmarias, when there was the first attempts of distribution of land here. Guedes raised the historical aspects of the question that remains with no solution until today. “We do not have an occupancy policy of the national territory, we need a more strict rural registration and better understand the origin of the land ownership in the country to discuss its taxation. There is a lot of default in ITR, and nothing happen to such people”, he affirmed. According to him, what is the productive property does not have a good definition yet. On March, Instituto Escolhas interviewed the professor, where he approached th theme of ITR giving further details on the challenges the country faces to stimulate a fairer policy to the agricultural question.

To Sergio Leitão, executive officer of Instituto Escolhas, the update of the form of collection of ITR, in addition to tax justice, a portion of contribution to the country and its cities to be up to date with the public accounts. “In the universe where all of us look for tax justice, ITR should be so important as IPTU, since both are levied on a private property, which may generate revenue to the owner and which value is benefited by public policies of improvement of the collective infrastructure conditions”, he explained.

NEW PROPOSALS FOR COLLECTION OF THE RURAL PROPERTY TAX (ITR)

– Update of the Table of Livestock Occupancy to an average value of 1.37 cattle unit per hectare, almost twice and a half the number used today, of 0.56 per hectare.

– New formula to calculate the tax:

1.  part of the minimum fixed rate (0.2%) , as IPTU, which is levied on the whole value of the real property property, except on areas of mandatory environmental preservation;
2.  progressive and eliminates jumps between the ranges of the current table, which may be causing distortions in the classification of the real estate properties;
3. makes the rate of ITR progressive only in relation to the usable area, and not to the total area of the real estate property (with its preservation areas)

 

– Replacement, upon the assessment of the calculation base of ITR, of the Bare Land Value (VTN) by the Rural Property Value (VIR), which is the average regional market value of the real estate property as a whole, including improvements, cultures, etc. As ITR is a tax on the real estate property, there is no reason so that it is not levied on the whole value of the real estate property, including investments carried out therein, as example of the collection of IPTU.

The complete study and the executive summary may already be accessed here in Estudos #Escolhas (Studies #Escolhas).