Brazil’s government enacts provisional measure for a 9.2% tax on crude oil exports

On March 1, 2023, Provisional Measure No. 1,163/2023 (PM 1,163) was published in Brazil’s Official Federal Gazette, introducing a 9.2% tax on exports of crude oil and other bituminous minerals classified under the Harmonized System code 2709 (NCM 2709). The provisional measure also reinstates partial taxation on certain fuels.

Tax on crude oil exports

PM 1,163 establishes that a 9.2% Export Tax will be levied on the export of crude oil and bituminous minerals classified under the NCM 2709 code until June 30, 2023. As per the provisional measure’s explanatory statement, the new tax is expected to add roughly BRL 6 billion to Brazil’s public coffers.

This statement also explains that the 9.2% export tax on crude oil has been created in the context of an exemption for social security contribution taxes (PIS/COFINS) that are normally levied on fuels, which has resulted in a reduction of an estimated BRL 6.61 billion in tax revenue.

In our view, there are constitutional and legal grounds to challenge the introduction of the new export tax, particularly considering the clear ‘collecting’ function (i.e., to generate tax revenue for the federal government) attributed to this specific export tax, as opposed to the ‘extra-fiscal/non-collection’ attribute the Brazilian Constitution grants to the export tax. In fact, while the federal government may impose export taxes as a means of discouraging the production or sale of certain goods, it may not do so to generate revenue or simply compensate losses deriving from exemptions and other forms of tax breaks.

It is also possible to dispute if a provisional measure is an appropriate legal instrument for introducing such a tax, as far as the aspects of urgency and importance (required to enact a provisional measure) have not been demonstrated in this case.

Changes to PIS/COFINS and CIDE for the fuel sector

Enacted on January 1, 2023, Provisional Measure No. 1,157/2023 exempted gas and alcohol fuels from PIS/COFINS and PIS/COFINS-Importation until February 28, 2023 (extending exemptions that had previously been implemented by Complementary Law No. 192/2022 until December 31, 2022).

As a result, taxation on these fuels was supposed to have been fully reinstated as of March 1, 2023. However, PM 1,163 has provided for new reduced tax rates for those fuels, among other measures, as outlined below:

• Reduces the rates of PIS/COFINS and PIS/COFINS-Importation for aviation fuel and vehicle natural gas to zero until June 30, 2023;
• Reduces the Contribution Tax for Intervention in the Economic Domain (CIDE) levied on the gasoline to zero until June 30, 2023;
• Reduces the ad-rem PIS/COFINS tax rates levied on gasoline and alcohol fuels, which were previously reduced to zero until February 28, 2023;
• Suspends the payment of PIS/COFINS and PIS/COFINS-Importation levied on the acquisition or importation of crude oil by refineries for fuel production until December 31, 2023. This suspension is converted into a zero rate after the crude oil is used to produce fuel.

For further information on this topic, please contact Mattos Filho’s Tax practice area.