A Tax Reform in the oil and gas sector will increase the cost of goods and services and may lead to inflation.

T&B Petroleum/Press Office IBP
14/11/2023 20:30
A Tax Reform in the oil and gas sector will increase the cost of goods and services and may lead to inflation. Imagem: Petrobras Agency Visualizações: 1225 (0) (0) (0) (0)

The Brazilian Institute of Oil and Gas (IBP), the main entity representing the oil and gas sector in the country, reaffirms its support for the Tax Reform due to its potential to modernize the Brazilian tax system. However, it warns that the possibility of implementing the Selective Tax, as outlined in the approved Senate version of the Reform Proposal, could lead to the burdening of prices for goods and services across different production chains that use oil and its derivatives as inputs. Additionally, it may result in the cumulative incidence of this extra-fiscal tax throughout the chain.

Moreover, the Senate-approved text allows for tax exemptions on the importation of oil and derivatives by the Manaus Free Trade Zone (ZFM), incorporating criteria currently defined in a Decree-Law into the constitutional text. This provides greater flexibility in defining sectors linked to stimulating economic activities in the region.

Selective Tax impacts the end consumer

The potential imposition of the new tax on oil, gas, and their derivatives, including fuels and minerals, will increase the operational costs of these products, affecting other product chains and impacting the end consumer. Furthermore, the increased burden caused by the Selective Tax will affect the attraction of investments and industrial competitiveness in the country.

Regarding natural gas, for example, the forecast of a Selective Tax contradicts government initiatives such as "Gas to Employ" and "Gas for Industry," which aim to enhance the competitiveness of an essential input for the growth and decarbonization of the industrial sector. It will also have implications for the cost of electricity since gas is a crucial input for power generation.

In the oil exploration and production segment, studies and simulations conducted by the IBP indicate that the attractiveness of Brazilian fields is below that of countries such as Guyana, Suriname, Angola, and Namibia. In this sense, considering that oil exploration and production activities occur in a globally competitive environment, the introduction of a new tax in a scenario with less available investment resources represents a critical factor for multinational companies to invest in Brazil.

Regarding fuels, the IBP estimates that the tax's incidence could have an annual impact of R$5.5 billion on society, considering the consumption of diesel and gasoline in Brazil, in addition to the already high tax burden on the sector.

In this regard, to prevent an undue increase in the tax burden and cumulativity in the Brazilian tax system, which the reform itself aims to combat, it is necessary to exclude the entire chain of oil, gas, and derivatives from the forecast of Selective Tax incidence.

Exemption in the Manaus Free Trade Zone raises concerns in the market

The tax reform text approved by the Federal Senate excludes oil and derivatives from the restrictions on incentives and benefits in the Manaus Free Trade Zone, currently governed by Decree-Law 288/67, opening the possibility for differentiated tax treatment in operations with these products in the area.

However, including this provision in the constitutional text makes it difficult to make future changes regarding which products may or may not be exempt, creating a rigidity that could compromise the development of the Manaus Free Trade Zone. This is unnecessary, as the matter is governed by a legally binding provision.

Another relevant point is that the measure may lead to an increase in the informal market, with the potential sale of products benefiting from the exemption outside the Manaus region. Importers may migrate to the region, attracted by the possibility of selling artificially cheaper products to other states, creating unfair competition.

Finally, one aspect to note is the potential creation of excessive competitive imbalance among states, despite the legitimacy of developing the region, establishing a tax asymmetry with various effects, from the migration of investments to the reduction of federal revenue.

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