Tax overhaul clouds outlook for infrastructure concessions

Concerns about the tax changes are not limited to infrastructure. But unlike other sectors, concessionaires are not free to adjust prices and pass on cost increases, said tax lawyer Jorge Lopes, a partner at Pinheiro Neto Advogados. “It is a sector of long-term contracts. Other sectors have more freedom to react quickly to impacts,” he said.

Sanitation companies are in the most dramatic situation, according to companies and tax lawyers. The sector, which does not pay municipal and state taxes, was left out of the exemption list in the reform. Abcon, the association representing private sanitation companies, estimates that the average impact on tariffs could reach 18%, considering that the tax rate would rise from the current level of as much as 9.25% to 26.5%, according to preliminary calculations.

The law recognizes that infrastructure concessionaires have the right to compensation for tax increases, through tariff increases, for example. However, calculating and applying that compensation is often difficult and slow.

In sanitation, companies have not even reached the stage of discussing contract rebalancing because they are still in an earlier, more bureaucratic phase: understanding how invoices will be issued for taxes from which they are currently exempt, said Abcon president, Christianne Dias.

“There is a working group with the Federal Revenue Service, but the rule is not ready. There is a lot of anxiety among members. In January 2027, companies will start facing fines, and no one knows yet what the system will look like,” she said.

Worse than the fines, there is a risk that companies’ operations could be halted without this system, said André Menon, a tax partner at law firm Machado Meyer. “Because of the validation rules, which are the minimum information required for a tax document to be issued, the taxpayer cannot even operate. The company would not be able to bill for water, for example.”

Asked about the issue, the Federal Revenue Service said there are “no more uncertainties,” since the manuals on water and sanitation invoices were published in April. Abcon, however, said it is still waiting for a guide with the clarifications companies need to develop their systems, and that the outlook remains unclear.

Once that stage is cleared, sanitation companies will still have to deal with contract rebalancing, another issue that is more complex in the sector because of the large number of regulatory agencies. “There are 110 agencies, so standardizing the methodology is very difficult,” Dias said.

Abcon believes the solution will be to negotiate a reference rule with ANA, the National Water and Sanitation Agency, which sets the parameters that local agencies must follow. So far, however, talks with the federal agency have not advanced. Outside that framework, rebalancing itself can only be granted by the local authority. “The risk is that the sector will grind to a halt and investment will be frozen,” Dias said. ANA declined to comment.

Preventive rebalancing

For highways, talks with the largest agencies, ANTT, the National Land Transportation Agency, and Artesp, the São Paulo State Transportation Agency, are already underway, but regulators have not yet put forward a concrete proposal.

“The main concern is to give momentum to the issue with a view to concluding it still in 2026, so that 2027 begins with the [contract rebalancing calculation] methodology in place and concessionaires do not face a cash-flow mismatch,” said Marco Aurélio Barcelos, president of the Brazilian Association of Highway Concessionaires (ABCR).

He said it is difficult to quantify the average impact of the reform because it varies greatly from case to case. In more recent contracts, where there are still more works to be carried out, the effect is smaller, since taxes can be offset with credits generated by investments. More mature projects, where works have already been delivered, are more affected.

ABCR’s proposal is to work with annual precautionary rebalancing, anticipating the effects, instead of waiting for the impacts to occur and only then filing rebalancing requests, as usually happens. “The idea is to project the impacts of the reform for 2027 at the end of 2026 and already carry out a rebalancing. At the end of the year, we will have the actual information on the impact and, with that, make the adjustment.”

ABCR argues that this should be done every year, always with advance compensation for the following year, along with an assessment of the previous year, supported by independent verifiers.

Sector agencies still do not have a proposal, but there are signs that the precautionary rebalancing model could be adopted in the case of the tax reform.

ANTT Director General Guilherme Sampaio said in a statement that the possibility of precautionary and evidence-based rebalancing is being considered. “At this moment, however, there is still no definitive methodology approved by ANTT,” he said. Sampaio noted that he understands companies’ concerns and stressed that ANTT should address the issue “as quickly as possible, without compromising technical consistency and legal certainty.”

Artesp said it is preparing a methodology “based on objective technical criteria, taking into account the specific characteristics of each concession.”

Risk matrix

The National Civil Aviation Agency (Anac), which regulates airports, said it has a working group with companies to discuss the methodology for calculating the impacts. The National Waterway Transportation Agency (Antaq), which oversees ports, said that “any requests must demonstrate the causal link, the materiality of the impact and its adherence to the risk matrix.”

The Federal Revenue Service noted that the law gives regulatory agencies 90 days to respond to rebalancing requests, with a one-time extension of another 90 days.

Despite concerns over the start of implementation, Pinheiro Neto’s Lopes said the reform will be phased in.

In 2027, Contribution on Goods and Services (CBS) will take effect, replacing federal taxes. Starting in 2029, the transition to Tax on Goods and Services (IBS), which will replace state and municipal taxes, will begin. A testing phase is already starting this year.

Lopes also said segments such as energy and telecommunications, which already face high tax rates, should feel less of an impact.

The infrastructure segment that will benefit the most is public transportation, which will be exempt.