A study prepared by Inesc (Institute for Socioeconomic Studies) shows that Brazil increased the value of incentives and subsidies for fossil fuels in 2020, reaching a total waiver of R$ 123.9 billion in the year.
The increase goes against global pressure to reduce greenhouse gas emissions after new warnings about the chaotic consequences of rising temperatures on the planet, such as droughts, floods, rising sea levels and the emergence of millions of climate refugees.
According to Inesc, the value of the Brazilian waiver in 2020 is 25% higher than in 2019, a rise mainly due to a tax benefit given to the production of oil and natural gas under the Repetro special regime, which would expire in 2022 but was extended until 2040.
The tax waiver in incentive programs for oil production was R$ 58 billion, according to calculations by Inesc. In addition to Repetro, the account includes a benefit provided by Law 13,586/2017, which expanded the scope of the regime and allowed for a reduction in the Social Contribution on Net Income for the sector.
“From an environmental and climate point of view, such subsidies go against the polluter pays principle, internationally consolidated as a key to solving the problem of greenhouse gas emissions and loss of biodiversity on the planet”, says Inesc.
The institute argues that, although the Internal Revenue Service states that there is no waiver, Repetro is considered by the OECD (Organization for Economic Cooperation and Development) as a subsidy for fossil fuels.
In a report released in July, says Inesc, the OECD recommends that Brazil “develop a long-term strategy to identify, reduce and, eventually, eliminate public subsidies for the production of fossil fuels.”
Created in 1999 amid the process of opening the oil sector to foreign companies after the end of the state monopoly, Repetro is defended by the sector as necessary to make production viable in a country with a high tax burden.
“It is inevitable that the topic assumes international relevance,” says Inesc, noting that Brazil has achieved the status of a major oil producer and exporter in recent years. Between the end of 2000 and the end of 2021, national production jumped 113%, to 3.52 million barrels per day.
The largest share of subsidies for fossil fuels in the country, however, is destined for consumption, according to an assessment by the institute. There are R$ 63.3 billion in waiver of tax collection on automotive fuels and in subsidies for thermal plants using coal and diesel oil.
The transport sector is responsible for 13% of CO2 emissions in Brazil, according to data released by Anfavea (association of automakers).
In the case of fuels, the calculation considers the loss of revenue in relation to the maximum rates provided for by law for PIS/Cofins and Cide (Contribution on Intervention in the Economic Domain). In 2020, this loss reached R$ 52.5 billion.
“The price of fossil fuels is, obviously, a highly sensitive issue,” admits Inesc, arguing that pressure from truck drivers and the impacts of high prices on society demand a debate on pricing policy linked to international quotations.
“What governments have done in response to the demand for cargo transport is to try to hold prices by changing Cide, PIS and Cofins rates. However, this process, in addition to generating a loss of revenue at present, makes the necessary review even more difficult of subsidies to fossils.”
This year, given the escalation of international prices, the federal government temporarily exempted diesel from PIS/Cofins and definitively zeroed the rate for cooking gas. Last month, the States froze ICMS for 90 days.
The institute claims that there is little transparency in the granting and calculation of these benefits and recommends that Congress approve a bill that provides for the disclosure of benefited companies and their respective values, in addition to pressuring the TCU (Tribunal de Contas da União) to assess Repetro.
It also asks the Federal Revenue Service to give more transparency to information about Repetro and that this data start to be evaluated by the Union’s Subsidies Monitoring and Evaluation Committee.
For consumption subsidies, the recommendation is that the tax reform converts the Cide on fuels into a Cide-Carbon, with broader application and incidence.
And he warns of recent Congressional decisions with the potential to further expand subsidies, such as the mandatory contracting of natural gas thermal plants foreseen by the Eletrobras privatization MP or the lobbying for the expansion of subsidies for coal thermal power plants.
For the Inesc advisor responsible for the study, Alessandra Cardoso, the topic “should gain special attention in the current context of intense economic crisis, in addition to guiding the debate on pollution caused by the emission of fossil fuels into the atmosphere at the COP-26 world conference″ .
“The incentives and subsidies granted to fossil fuels are intrinsically linked to the global resistance of countries, industry and investors to restrict the growth of production and emissions, which delays the urgent energy transition”, he concludes.
The Internal Revenue Service says it understands that “it is not possible, given the design of our reference tax system, to consider Repetro (and other special customs regimes) as a tax expense”, as it has a long-term effect vision.
In a note sent to sheet, a Revenue argues that, although it is possible to estimate what the waiver would be through the application of rates, the calculation “greatly overestimates the waiver”, as it does not consider that, in normal situations, the payment of taxes generates credits to the taxpayer.
“Although, looking from the import side, we were able to reach numbers similar to those in the OECD report, what was missing from the report was to show how taxes would be collected by a company that is not a Repetro beneficiary, taking into account the credit and its long-term effect.”
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