Originally published in the September 25 edition of World Tax Daily (Copyrights Tax Analysts)
Brazil’s Culture and Finance ministries are considering the creation of a new tax on book sales to be paid by publishing companies. Revenue from the tax would be used to create a fund that would promote reading.
A bill introducing the new tax is still under debate by the ministries. The proposal would create a so-called contribution of intervention in the economic sector (CIDE) to be levied at the rate of 1 percent of the gross income of publishing companies, book distributors, and bookstores.
The tax would be cumulative, which means the tax would not be creditable within the publishing business but would instead be applied on each stage of production and distribution of publications. For instance, if a publication goes from the publishing company to a distributor before reaching the bookstore, the new tax would apply three times over gross income earned by the publishing company, the distributor, and the bookstore.
The executive branch estimates the new tax could generate BRL 60 million per year in tax revenues.
The government says the publishing sector agreed to the creation of the new tax in 2004, when the government reduced to zero the rates of the Contribution for the Financing of Social Security (COFINS) and the Program for Social Integration (P.I.S.) contribution, which were then levied at the rates of 3 percent and 0.65 percent, respectively, on the gross income of the publishing sector.
Fabiano dos Santos Piúba, the Ministry of Culture’s director of books, reading, and literature, advocates the new tax, saying that it would fund the creation and modernization of public libraries and the creation of professional positions associated with this sector, such as teachers, librarians, and storytellers.
Although the new tax is supposed to support and promote reading, the publishing sector argues it might do the opposite by putting small publishers, distributors, and bookstore out of business, particularly in the countryside where large publishing companies are not present.
These businesses have smaller margins and less leverage to negotiate discounts. Thus, fewer people would have access to books and publications.
Publishers also argue that the publishing market is very sensitive to price changes and that the price increase resulting from a new tax could reduce consumption.
The publishing sector is mobilizing its lobby to block the proposal should it reach Congress. In the meantime, the publishing sector is trying to negotiate a reduction in the 1 percent rate the government plans to establish.
David Roberto R. Soares da Silva