Brazil Temporarily Increases Tax on Agricultural Exports

In a surprise move, President Luiz Inacio Lula da Silva issued a Provisional Measure last week that limited the use of PIS/Cofins credits that effectively increased taxes on those who export agricultural commodities. The limitations on the use of these credits harm not only agricultural products, but also fuel and freight, which increases the penalty for rural producers the further away they are from ports. The impact on commodities is not entirely clear, but it looks like it will cost crushers and exporters $10-15 per ton.

This measure will take effect immediately and be in place for 120 days, but the Brazilian Congress must approve it beyond that date. Initially, the measure paralyzed the soybean market as trading companies evaluated the effects of the provisional measure. Parliamentarians linked to agribusiness are mobilizing to overturn it and the Brazilian Finance Minister, Fernando Haddad, is already considering withdrawing the decision after drawing the ire of companies and Congress.

Lula justified the measure as a way to close the unexpected shortfall in government revenues. The measure is expected to bring in R$ 29 billion, more than enough to cover the projected R$ 26 billion shortfall in revenue. Given the influence of the agricultural sector in Brazil, the odds are that Congress will not extend the measure beyond the original 120 days and it might even be withdrawn before then.

Tags: export, Brazil, taxes, agricultural products, agricultural commodities