Brazil’s chemicals plea Senate to fully implement REIQ tax break

SAO PAULO (ICIS)–Brazil’s Senate has a chance this week to fully implement the REIQ tax break for chemicals and avoid potential plant closures as firms continue struggling with high input costs and low selling prices, the country’s chemicals trade group Abiquim said on Monday.

Brazil’s Senate is due to vote on Tuesday 7 November the long-running fiscal reform (Reforma Tributaria in Portuguese) which aims to simply the country’s many taxes into three.

Abiquim said it had sent a letter to the senators of Brazil’s states which have petrochemical plants asking them to include in the reform two amendments which would fast-track implementation of the so-called Special Regime for the Chemical Industry (REIQ in its Portuguese acronym).

The Brazilian government approved to reinstate REIQ in August but, two months on, REIQ is yet to be implemented.

REIQ would lower the PIS/COFINS tax rate that the chemical industry pays for inputs within the xylenes chain, including naphtha, benzene, propene, ethene, toluene and cumene.

PIS and COFINS are imposed on the Brazilian entity or individual (the importer of goods or services) and should apply to the import of services at the rates of 1.65% and 7.6%, respectively.

Under REIQ, the PIS/COFINS rate would stand at 3.65% overall. With the suspension of REIQ under the previous Jair Bolsonaro Administration, the PIS/COFINS rate rose to 9.25%, with PIS making up 1.65% and COFINS making up 7.6%.

Abiquim asked for the two amendments to be included in the reform on Tuesday after the government has failed to fully regulate REIQ’s implementation.

The trade group also continued its campaign against what it considers imports into Brazil of chemicals produced with lower environmental standards and higher state subsidies.

“The Brazilian petrochemicals industry – the most sustainable on the planet – has been showing clear signs that it is heading towards a process of extinction due to the lack of support [from public institutions] against predatory competition from other countries that subsidise and supply cheaper crude oil natural gas,” said Abiquim’s executive president, Andre Passos.

“If this situation is maintained, the sector runs the risk of plant closures, especially medium and small ones, in addition to unemployment.”

Abiquim repeated on Monday some of the figures which, it argues, show the “critical” situation the chemicals industry is in.

In the January-August period, compared with the same period of 2022, all indicators measured by Abiquim worsened, the trade group said:

– Production: -11.4%
– Internal dales: – 10.8%
– Internal demand: -6.3%
– Price index: – 17.2%
– Capacity utilisation: 65%, lowest in 30 years
– Share of imports covering domestic demand: 47%, record high
– Exports: -3.7%
– Imports: 6.0%
– Trade deficit (covers January-September): $35.8bn, record high

According to Abiquim, Brazil’s chemical industry is the world’s sixth largest, creating 2m direct and indirect jobs and representing 11% of industrial GDP.

Brazil’s petrochemicals and fertilizers producer Unigel has announced it is to shut its Camacari, state of Bahia, nitrogen fertilizers plant on the back of high input costs due to natural gas values and low selling prices.