Brazil’s Finance Minister Guido Mantega announced a tax credit for industry that he says will reduce the tax burden for companies operating abroad without compromising government revenue.

The government will give a tax credit of 9 percent of earnings abroad to all Brazilian industrial companies, including miners such as Vale SA. (VALE5) The credit, which takes effect in October, had been restricted to the construction, services, food and beverages sectors.

Previously exporters had been obliged to pay in Brazil the difference between its 34 percent tax rate and their foreign tax rate, which averages about 25 percent, Mantega told reporters yesterday in Sao Paulo.

“This won’t have any fiscal impact because there were companies bringing lawsuits at the same time the tax agency brought actions, so you didn’t have any tax collection,” Mantega said following a meeting at the National Industry Confederation. “Now they’ll pay what they didn’t pay before. We’ll even have an increase in tax collection and fewer lawsuits.”

Government revenues are flagging after President Dilma Rousseff’s administration granted billions of dollars in tax cuts to industry, which is in the throes of recession. Business sentiment has plummeted before presidential elections in October, with Rousseff running for re-election.

The tax credit will improve companies’ competitiveness abroad by relieving them of a burden that other firms operating in the same countries don’t face, while simplifying their tax situation at home, Mantega said.

‘Market-Friendly’

“He’s trying to make something more market-friendly, make it better for companies,” Andre Perfeito, chief economist at Gradual Investimentos, said by phone from Rio de Janeiro.

Mantega also announced that the tax benefit program known as Reintegra would grant exporters a 3 percent tax credit on their export revenues in 2015.

Big exporters like miner Vale will benefit from the 9 percent tax credit, and the company’s shares will tend to increase when the market opens tomorrow, according to Adriano Pires, head of the Brazilian Center for Infrastructure.

“The big example is Vale, which will benefit quite a bit from this,” Pires said by phone from Rio de Janeiro. “The domestic market for Vale is very little compared to its market abroad.”

The measure makes more sense than restricting the tax benefit to a few industries, said Julio de Oliveira, a lawyer specializing in taxation at Sao Paulo law firm Machado Associados.

“If on the one hand the measure is positive, on the other you could discuss the opportunism of the government announcing the benefit less than a month before elections,” Oliveira said by telephone.

Iron Ore

In April, Vale won an appeal against Brazilian government tax claims, paving the way for the biggest iron-ore miner to seek a rebate from a $10 billion settlement.

Brazil’s Superior Justice Tribunal judges voted 3-1 in favor of Vale’s appeal against taxes the government claims for profit from overseas units in 2002 and 2013.

The ruling revives Vale’s decade-long dispute against levies claimed by Brazil that led the company to pay 22.3 billion reais ($9.5 billion) in a settlement for the 2003-2012 period in November. Vale’s chief counsel, Clovis Torres, said a successful appeal would lead the company to seek a rebate.

The government can appeal the decision to the Supreme Federal Tribunal, or STF, the country’s highest court. The Superior Tribunal, or STJ, is the second-highest.

The government targets a primary fiscal surplus of 1.9 percent of gross domestic product for 2014. Mantega said earlier yesterday at a separate Sao Paulo event that the government will increase the target next year, presuming Rousseff is re-elected. Through July this year, the surplus was equal to 0.84 percent of GDP.

Brazil’s industrial confidence in July fell to its lowest level on record, as measured by the National Industry Confederation.