Brazil’s Finance Ministry has backed extending the 12% tax on oil exports for another 60 days, Valor has learned. The proposal will be considered this Thursday (27) by the Foreign Trade Chamber (Camex), just ahead of the levy’s scheduled expiration on Sept. 9. The ministry’s position has put oil companies on alert.

The Finance Ministry sent its recommendation Tuesday to the Ministry of Development, Industry, Trade and Services (MDIC), which chairs Camex. The document, seen by Valor, is signed by Finance Ministry Executive Secretary Rogério Ceron.

The ministry said its technical analysis shows that the international environment remains highly volatile, with logistical constraints and uncertainty over when supplies of oil and refined products will normalize.

“In view of the elements presented in the information note, this ministry understands that the available information supports, from a technical standpoint, temporarily maintaining the 12% rate for another 60 days, without an increase, accompanied by continuous monitoring and periodic reassessment of conditions in the international and domestic markets for oil and refined products,” Ceron said in the document.

Supply risks

The Finance Ministry said significant constraints on production and exports from the Persian Gulf remain in place, alongside risks affecting international energy transportation routes, particularly through the Strait of Hormuz. In its view, those circumstances warrant continued monitoring of supply conditions.

The ministry also said domestic data collected while the export tax has been in effect show developments “consistent” with the measure’s regulatory purpose, including increased crude processing at Brazilian refineries, lower imports of oil and refined products, and higher domestic production of fuels, particularly diesel.

At the same time, both oil production and exports have continued to expand.

“The available information does not indicate that the 12% rate has materially undermined the economic attractiveness of exploration and production operations, the continuation of projects or the expansion of supply in the short term,” Ceron said.

Against that backdrop, he said, the technical assessment “indicates the feasibility of maintaining the current 12% rate for an additional period of 60 days.”

The ministry considers that timeframe consistent with the temporary nature of the measure and with the need to provide regulatory stability and predictability, while allowing market conditions to be reassessed.

The analysis found no technical grounds, however, for raising the tax at this stage. “The measure currently in place is already producing regulatory effects consistent with its purpose,” the document said.

Industry concerns

Parts of the oil industry are concerned that a measure introduced on regulatory grounds to help offset subsidies for gasoline and diesel may be turning into a revenue-raising tool and could remain in place for longer, weighing on companies’ cash flow and investment decisions.

The tax generated R$3.16 billion in revenue in July, the Federal Revenue Service said Tuesday. The Finance Ministry’s formal recommendation just before the Camex meeting has heightened concern in the sector.

Companies argue that the effects of the levy are more likely to emerge in decisions on new investment than immediately in production from fields already operating.

There is also criticism that the tax is levied on companies’ revenue rather than profits. With production and logistics costs also rising, industry participants say the measure could undermine lower-return projects and even affect operations that, under certain circumstances, are not profitable, further eroding project economics.

Another concern is the lack of a clear end date. Companies fear the tax could be repeatedly extended without a final deadline or objective criteria for its removal.

Even setting an expiration date would not resolve broader objections to the model. Industry participants argue that a mechanism of this kind, if used in exceptional circumstances, should be established through legislation and debated by the National Congress.

Legal challenge

In August, major oil companies went to court to challenge the resolution imposing the 12% tax on crude-oil exports.

Last Friday, the Brazilian Petroleum, Gas and Biofuels Institute (IBP), which represents companies across the industry, sent a letter to MDIC urging the government not to extend the export tax.

The group argues that Brazil is a price taker in the global oil market, accounting for about 4% of world production and 2% to 3% of global oil exports, and therefore lacks sufficient market power to influence international prices.

IBP also said the tax has failed to redirect to the domestic market oil that would otherwise have been exported because Brazil’s refining system is structurally unable to absorb all the crude produced in the country.

In the group’s view, the levy, which applies to companies’ gross revenue, also places a disproportionate burden on exploration and production projects and threatens the viability of investments planned to revitalize mature fields.

Refining limits

IBP cited Finance Ministry data showing that domestic crude processing reached 101% of national refining capacity, which it said demonstrates that domestic demand for crude has reached its limit.

The group also pointed to an earlier note from the Secretariat for Economic Reforms concluding that the available data did not allow the increase in domestic processing and fuel supply to be attributed through “exclusive causality to the Export Tax.”

“It must be recognized that there is no rationale for maintaining any purportedly regulatory measure aimed at preventing or discouraging oil exports,” IBP said.

If Camex approves the proposal, it will be the second extension of the 12% rate.

The government had estimated that the measure would raise R$15.6 billion over four months, based on Brent crude at $90 a barrel.

The Finance Ministry and MDIC did not respond to requests for comment.

*By Marlla Sabino and Giordanna Neves — Brasília

Source: Valor International

https://valorinternational.globo.com/