Brazilian mining firms look to congress to overturn selective tax

Mining companies in Brazil have once again turned their focus to congress in an effort to thwart the introduction of another tax on the sector as part of ongoing debate around tax reform.

In July, the lower house of congress approved key regulations for the tax reform passed last year, which was aimed at simplifying Brazil’s complex tax system. The reform replaced taxes such as PIS, Cofins, IPI, ICMS, and ISS with the federal and state IBS and CBS taxes, which are applied much like VAT in other countries.

The lower house also authorized a selective tax  on activities deemed harmful to health and the environment, which was initially set at 1% but was reduced to 0.25% due to pressure from the mining industry. Although the sector secured a partial victory, it continues to push for the complete removal of this tax.

Currently, all the regulations approved by the lower house are under review in the senate, where final approval is needed. The mining sector is advocating for the elimination of the selective tax, arguing that it would harm the economy, impede the energy transition and undermine competitiveness and investment in the mining industry.

"The possible application of the selective tax (IS) on minerals will result in nationwide economic losses, complicate the progress of the energy transition, and negatively impact competitiveness, business operations, exports, investments, and jobs in the mining sector," Brazil’s mining association Ibram said in a statement.

"These impacts must be considered as the IS regulation bill is processed in the senate to ensure this tax does not apply to mineral assets, which are of public utility," it added.

Rinaldo Mancin, Ibram's director of institutional affairs, attended a recent senate hearing to debate the impacts of the selective tax on the sector.

Industry experts argue that imposing such a tax on mining would hurt investor sentiment.

"This selective tax needs to be thoroughly discussed to determine whether it truly makes sense to equate iron ore, for example, with other harmful products like cigarettes or alcohol," Afonso Sartorio, EY's mining and metals sector leader for South America, told BNamericas.

"Mining, which underpins numerous industrial supply chains and contributes significantly to Brazil's trade surplus and regional development, should not be treated on par with harmful products. Doing so could damage the perception of both society and investors," he added.

These discussions come as Brazil, a global iron production powerhouse, seeks to diversify its mining sector by attracting investment in critical minerals like lithium, copper and nickel. However, the current political and economic climate in Brazil, and particularly concerns about tax increases, is raising alarm.

"Brazil is facing a fiscal challenge, with increased public spending that could be offset by higher taxes. However, it's not solely the government's responsibility – centrist parties in congress, which control a large portion of the federal budget, also favor higher spending," Luis Octavio Leal, chief economist at G5 Partners, told BNamericas.