Originally published in the June 26 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazil’s Mines and Energy Ministry is considering amendments to regulations governing the mining sector, including a likely tax increase. The move was spurred by continuing increases in the number of mineral commodities in international markets and by a shortage of fertilizers in the Brazilian market, which has resulted in higher food prices.
Mines and Energy Minister Edison Lobão confirmed that a tax increase is likely. He said the new mining policy will focus on increasing new investments and guaranteeing that Brazil also profits from the wealth generated by investment activities. The new policy should also regulate mining activities in Indian reserves and would allow foreign companies to carry out activities in Brazil’s frontier zone.1
Lobão pointed out that state-owned company Petrobrás pays almost 65 percent in taxes on oil and gas activities while mining companies pay, on average, only 14 percent of their gross income. Lobão said that situation cannot continue, particularly with iron ore prices increasing more than 65 percent in the past year. He said official data show that while royalties2 from oil and gas generated BRL 54.7 billion (approximately $34 billion) in revenue from 2004 to 2007, mining royalties totaled only BRL 1.74 billion (approximately $1.08 billion) during the same period.
Lobão did not specify how mining-related taxes would be increased but said the Mines and Energy Ministry is studying proposals for submission to other ministries and President Luiz Inácio Lula da Silva before a law project is sent to Congress.
- FOOTNOTES
1 Brazil’s frontier zone is a strip of land along Brazil’s international borders. In accordance with legislation approved during the 1970s, foreign individuals and companies and domestic companies owned by foreigners cannot carry on some activities in the frontier zone without prior approval from Brazil’s National Defense Council. Failure to obtain prior approval may result in the imposition of penalties or compulsory transfer of land ownership to Brazilians.
2 Royalties in this sense refer to exploration taxes paid by companies to federal, state, and local governments.
- END OF FOOTNOTES
David Roberto R. Soares da Silva