Brazil's chemical industry regains special tax regime

The acting President Geraldo Alckmin has signed a decree on the 24th of this month, reestablishing a beneficial tax regime. This development marks a pivotal step towards revitalizing a sector that serves as a central point for the nation's industrial production.

The decree pertains to the revival of the Special Regime for the Chemical Industry (Reiq), which extends tax exemptions to the sector. By bringing back this specialized regime, the Brazilian government aims to enhance the competitive landscape for chemical businesses, which play a pivotal role in generating both direct and indirect employment opportunities. Notably, the chemical industry accounts for a substantial 11% of the country's industrial GDP, a figure underscored by data from the Brazilian Chemical Industry Association (Abiquim).

Scheduled for publication in the Federal Official Gazette on the 25th, this decree is set to redefine the trajectory of the chemical industry. "This sector plays a strategic role in the neo-industrialization initiative and the overall fortification of the industry. Reiq stands as a crucial driver for market competitiveness, job creation, and income generation," remarked President Alckmin.

However, the impact of this decree transcends mere tax exemptions. In addition to restoring previous tax conditions, the new legislation introduces supplementary credits for companies willing to invest in expanding their production capacities or embarking on the establishment of new plants, particularly those harnessing natural gas for fertilizer production.

Established in 2013, Reiq holds the key to enhancing the chemical industry's resilience. It entails the exemption of PIS/Cofins taxes on core products pivotal to the first- and second-generation petrochemical domain. The resulting downstream products encompass an array of essential goods, including fertilizers, active medicinal ingredients, plastics, fibers, rubbers, paints, and inputs for the food and beverage sector. By mitigating cost disparities between local chemical enterprises and their global counterparts, this scheme bolsters the industry's competitive prowess on a global scale.

A comprehensive study conducted by the esteemed Getúlio Vargas Foundation (FGV) in 2021 underscores the profound impact of Reiq. The benefits of this regime cascade beyond the confines of the chemical industry, permeating the entire Brazilian economy. The study revealed an upswing in revenue, heightened productivity, and the preservation of employment opportunities. Intriguingly, projections from the study hinted at the possibility of an annual productivity plunge ranging from R$2.7 billion to R$5.7 billion within the sector if the benefits were to be rescinded.

Furthermore, the study sheds light on Reiq's potential to inject up to R$5.5 billion into the GDP, coupled with a yearly influx of no less than R$2 billion in tax revenue. These numbers underscore the substantial economic gains this specialized tax regime can usher in.

The newly signed decree, however, comes with certain commitments. Chemical plants and industries are expected to forge formal agreements with the Special Secretariat of the Federal Revenue of Brazil, encompassing various stipulations. These commitments encompass compliance with occupational health and safety regulations, adherence to environmentally restorative actions, maintenance of fiscal regularity, procurement of verified emissions reductions certificates, and sustaining workforce levels equivalent to, or exceeding, those present on January 1, 2022.

As this rejuvenated tax regime takes center stage, a vigilant eye will be cast on its implementation. The meticulous oversight of the scheme will be undertaken by various entities, including the Secretariat for Industrial Development, Innovation, Trade, and Services (SDIC), operating in synergy with the Federal Revenue Service, the Ministry of Labor and Employment, and the Ministry of the Environment and Climate Change.