Government studies options to maintain oil taxes amid war

The government intends to continue taxing crude oil exports and is studying legal ways to do so even if the provisional measure that created the tax loses validity.

Published on March 12, MP 1340 set a rate of 12% on foreign sales of crude oil. It is valid until July 9th and so far the joint commission responsible for its analysis in the National Congress has not been installed.

Large oil companies such as Shell, Total, Equinor and Repsol Sinopec even obtained an injunction against the new tax. However, the government managed to reverse the decision in the TRF-2 (Federal Regional Court of the 2nd Region) and refund the charge.

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The economic team calculates a revenue of R$ 15.6 billion - taking into account a barrel of oil at US$ 90 - during the four months that the provisional measure is in force. Part of the resources is being used to pay for the PIS/Cofins exemption on fuels in the domestic market.

Faced with the tight analysis deadline, oil companies have moved politically to make MP 1340 expire. They claim that the 12% tax imposes a very hefty bill and may even make certain projects unviable with the expectation of a lower economic return.

Privately, however, large companies in the sector recognize that it would be risky to put the provisional measure to a vote in the National Congress and have opted for the strategy of letting it expire without being considered by parliamentarians. This would make the financial impact of taxation limited to a period of 120 days - an alternative seen as "less bad" by oil companies.

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Three alternatives
Already anticipating a high risk of MP 1340 losing its validity, the government is evaluating ways to maintain taxation. The Minister of Finance, Dario Durigan, returned from G7 meetings in Paris convinced that the rise in oil prices on the international market should still last for some time and sees the need to preserve measures to contain fuel prices in the country.

For this reason, the economic team's intention is that the 12% tax on crude oil exports will continue to be charged after July 9th. Two alternatives are currently being considered.

The first is the presentation of a bill, on an urgent basis, for analysis by the National Congress. The government knows, however, that the Chamber of Deputies and the Senate are unlikely to vote on the proposal as the election campaign approaches.

The second option is a presidential decree or resolution from Camex (Chamber of Foreign Commerce) establishing a new rate or maintaining 12%. If this path is adopted, the government will claim that this is a regulatory tax, not a revenue tax, and does not necessarily require a law.

A third, less likely alternative is also mentioned by authorities in Brasília. It would be the adoption of a specific tax on extraordinary profits from oil companies amid the war in the Middle East and the rise in oil prices.

The United Kingdom and the European Union are among the regions that have preferred this type of taxation - considered less harmful by oil companies than the tax on exports.

The IBP (Brazilian Institute of Petroleum, Natural Gas and Biofuels) harshly criticizes MP 1340. According to the entity, the exploration and production segment is highly taxed and has generated more than R$1 trillion in financial compensation since 2010.

Also according to the IBP, with oil at US$103 billion per barrel, the Union has additional gains of R$74 billion (which reach R$120 billion when states and municipalities are added), which eliminates the need for additional taxes.

Petrobras has been taking a different stance from other oil companies and supporting the government in taxation.

Source: CNN