Projection by economist José Roberto Afonso says that the current text will reduce investments in the oil sector and government revenue
The oil and gas sector is organizing to try to remove the segment from the IS (Selective Tax) – a mechanism to discourage the consumption of goods and services considered harmful to health or the environment – proposed in the tax reform. In the view of the energy sector in general, the incidence of IS on oil and gas exploration is nonsense, as it will reduce the Union’s revenue while leaving the country unprotected from energy sovereignty.
At an event held by the (Instituto Pensar Energia), economist José Roberto Afonso presented a study that says that Brazil will lose around R$3.7 trillion in tax revenue from 2032 to 2055, if the sector is discouraged from investing in production of oil and the discovery of new reserves. The drop in the collection of charges would be accompanied by an 86% reduction in Brazilian oil production.
Based on data from the (Energy Research Company), Afonso said that Brazilian production should reach a peak in 2030, but with conditions to maintain its level close to 5 million barrels of oil per day. However, the incidence of IS will discourage the sector from exploring new reserves and Brazilian production will fall to something close to 500 thousand barrels per day in 2055.
According to the economist, the drop in production will make Brazil lose its status as an oil exporter and become an importer. Afonso presents that this is a paradoxical nature of the tax reform, because while the tax is levied on Brazilian production, the purchase of fuels abroad will not be burdened.
“The problem goes much further if we consider the provision for export taxation and the differentiated and favorable treatment for the import of fuels such as diesel and gasoline. Fuel produced in Brazil will be subject to selective taxes. Imported fuel, in turn, will not be available, as ready-made fuel (derivatives) will not be the basis for the new tax.”said Afonso.
Along with soybeans, oil is Brazil’s main export product. In 2023, Petrobras was the largest tax payer in the country, with a collection of R$240 billion in taxes, royalties and special participations.
In this sense, Brazil will lose billions of dollars in tax revenue at the same time that it will suffer from an imbalance in its trade balance.
“Between January and August 2024, the surplus generated by oil and derivatives exports was equivalent to almost 40% of the country’s total trade surplus, helping to offset the less favorable dynamics of agricultural exports and bringing greater exchange rate stability”declared Afonso.
In the current scenario, the oil and gas sector is included in the list of economic segments impacted by the IS, but there is still no defined rate for the charge.
In Afonso’s view, the value of the tax rate is sensitive and even a minimal incidence could deter investment in the country. According to the study, the imposition of a 1% tax on the revenue from an extraction project results, on average, in a drop of 0.35 percentage points in the project’s rate of return, reducing the attractiveness for internal and external investors.
The economist stated that the incidence of IS in the oil and gas sector may make sense initially, as the energy sector is the largest emitter of greenhouse gases in the world. The problem is that this reality does not translate into Brazil, where the sector represents only 18% of total emissions.
