São Paulo – The Brazilian industry is hopeful as a result of the measure which became effective in mid-May; the PIS and Cofins contributions (to social integration and social security programs) on petrochemicals were lowered from 9.25% to 1%. According to the Economics and Statistics direcetor of the Brazilian Chemical Industry Association (Abiquim), Fátima Giovanna Coviello Ferreira, the reduction, which was proposed by the industry itself, is meant to provide the national industry with relief, and curb the inflow of imported petrochemicals products, which is increasing in the country.
Imports of industrial chemicals, which include petrochemicals, were up 29% from January through April this year from the same period in 2012, according to Abiquim figures. Domestic consumption was also up, by 7.1%, but the demand was met by imports. The figures from May through June, when the measure was already in effect, are not available yet. Ferreira believes the tax break will make its impact felt particularly during quarter three.
According to the director, a large share of Brazil’s petrochemical imports originate from Asia, however the inflow of United States product is growing. The US has natural gas at low prices, and it is a raw material for petrochemicals. The country extracts shale gas, and in the past few years its supply has increased sharply. In Brazil, according to Ferreira, one of the issues that the industry struggles with is expensive raw materials. Aside from gas, petrochemical manufacturing demands naphtha, oil condensates and other inputs.
That, by the way, was one of the hurdles that led Abiquim to make a plea for taxes on first- and second-generation petrochemicals to be lowered. Other factors include the cost of doing business in Brazil, known as “Custo Brasil” – including logistics shortcomings and taxes themselves, which are unfavourable to national product. The pleas were submitted by Conselho de Competitividade de Química (the Chemical Competitiveness Council), which helped devise Plano Brasil Maior (Greater Brazil Plan), launched by president Dilma Rousseff in 2011 in a bid to make the Brazilian industry more competitive.
The provisional measure for lowering the PIS and Cofins taxes became effective on May 14th and will remain in effect for 120 days, after which it must be enacted into law, which should be valid for five years. A joint commission has been established between the Senate and the House of Representatives to address the matter in Congress, and according to Ferreira, Abiquim is monitoring the process. The association is also aiming to include other products under the tax break.
According to the director, the lowered PIS and Cofins taxes have brought the industry some relief, but did not solve all problems. The chemical industry is expecting additional action from the government, such as a national policy for the gas sector, including tax breaks and supply guarantees, among others.
*Translated by Gabriel Pomerancblum
