Incentives for the Oil and Natural Gas Sector Have Errors That Hinder Their Implementation

Tax Incentives Are Included in Repetro, A Customs Tax Regime That Facilitates The Import of Equipment, Being An Important Tool For Ensuring Investments In The Oil And Gas Sector

The Legislative Assembly of Rio de Janeiro (Alerj) approved at the beginning of June, Bill No. 1,771/19, which guarantees tax incentives for the oil and natural gas sector. The measure refers to the Tax on Circulation of Goods and Services (ICMS) in which it declares the maintenance of the ICMS rate at 3% for import operations and internal acquisitions of goods by companies in the sector in the state of Rio de Janeiro.

Tax Incentives

In order to be entitled to tax incentives, oil and natural gas producers and manufacturers must be properly regulated under Repetro. However, for attorney Flávia Holanda Gaeta, from the FH Lawyers’ Office, “the new wording assigned to items I and II of clause three has errors that severely impair its own application, as it defines that the ICMS exemption would only be linked to those ‘manufacturers’ qualified in Repetro-sped. However, final and/or intermediate manufacturers will never be properly qualified for Repetro-sped, as there is no legal provision that includes them in the list of subjects eligible to be beneficiaries of this regime,” explains Gaeta.

The ICMS Agreement No. 220/2019 amended the ICMS Agreement No. 03/2018, which authorized the States and the Federal District to grant reductions in the tax base and exemptions from ICMS on imports or on operations for acquiring goods or merchandise used in the activities of exploration and production of oil and natural gas within the scope of Repetro-Sped and Repetro-Industrialization.

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The Oil And Gas Sector May Face Risk Of Weakening If Issues Are Not Resolved

However, from the perspective of the attorney, the ICMS Agreement 220/2019, as it is written, has serious errors that compromise its application, causing insecurity in the sector, with possible consequences such as weakening investments in Brazil. This is something that Gaeta has been warning about, considering it directs the country in the opposite direction of what is expected during times of worsening economic crisis.

Situations like these cause losses at various levels, “States need to analyze what they are legislating, as the error in drafting the Agreement came from meetings held in the context of CONFAZ. Before regulating the Agreement, it is crucial that legislators and public agents evaluate the published text and take the initiative to review it in order to correct the distortions, returning the matter to CONFAZ. Without an initiative from the States, taxpayers would face enormous difficulties trying to reverse the scenario,” concludes Gaeta.