Rapporteur wants to include the taxation of natural resources extraction in Tax Reform

Senator Eduardo Braga proposed “sin tax” of 1% on the exploitation of minerals and oil

Translated by: Ana Paula Rocha

Brasil de Fato | Curitiba (PR) |
Environmental damages caused by mining could be compensated by taxation. - Foto: Divulgação/ Herculano mineração

The extraction of non-renewable natural resources for exportation may become taxed in Brazil if Congress approves the Tax Reform. The taxation of this activity – currently exempt – was included in the opinion of Senator Eduardo Braga (Brazilian Democratic Movement, Pará state), who is the reform’s rapporteur, which is under analysis in the Senate.

Braga presented his opinion on Wednesday (25). He hopes the report will be voted on by the Senate’s Constitution and Justice Committee (CCJ, in Portuguese) on November 7. The Senate’s president, Rodrigo Pacheco (Social Democratic Party, Minas Gerais state), intends to vote on the reform in the plenary until the end of November

Luiz Inácio Lula da Silva's government (Workers’ Party) said Tax Reform is a priority of his economic agenda this year. The Chamber of Deputies has already approved it. To come into force, it must go to the Senate and have any changes approved again by the Chamber of Deputies.

The taxation of natural resources exploitation, for instance, was not provided for in the bill the Chamber of Deputies voted on. Therefore, it should be reevaluated by parliamentarians. 

Braga wants to include the activity in the list of items taxed by the so-called selective tax, which will probably be established by the reform. Dubbed the "sin tax”, it is charged on products that harm consumers’ health or the environment. 

The reform provides for the unification of consumption taxes in Brazil. In sum, it proposes that all products purchased in the country should have 30% of taxes included in their prices. Cigarettes and alcoholic beverages, for instance, will have extra taxation by the selective tax. The rate was not defined yet.  

In the case of natural resources exploitation, Braga’s opinion established the limit of 1% in taxes, which would also be adopted by the Constitution, therefore making it hard to change after Congress’s approval. 

Braga said a complementary law to be voted on after the reform would establish the exact activities to be taxed. “Lithium extraction is strategic, so it may not be taxed,” he explained, mentioning that this metal is used in batteries and electric cars. “But if there is a metal we export and it generates few jobs and gains, why shouldn’t we charge it at 1% and invest these resources in strategic areas for the country?"

Tax-exempt activity 


According to Marcelo Lettieri, a tax inspector and the director of the Tax Justice Institute (IJF, in Portuguese), currently, the exploitation of primary and semi-finished products is tax-exempt in Brazil. It has been ruled by the Kandir Law since 1996.

To him, taxation would be “great news”. 

Economist Eric Gil Dantas, from the Petroleum Social Observatory (OSP, in Portuguese), also supports charging the activity. He thinks the taxation of commodities production in Brazil is low, which harms the country’s ability to socialize the benefits of extracting natural resources. 

“These commodities’ prices may increase in the coming years, which ends up increasing the need for creating taxes on them and easing the consequences of their sky-rocketing prices,” he said. 

In February, the federal government established a temporary tax on oil exports. It eased the losses of money from the cut in fuel taxes approved by former president Jair Bolsonaro (Liberal Party) on the eve of the election. The tax lasted for four months.

“I think natural resources have been exported without any charges. We take on social and environmental issues. Brazil needs resources to invest in innovation and combat inequality,” said Senator Braga, arguing in favor of taxation.

Distribution of the tax collected


According to Braga, the money obtained from the tax on natural resources will be distributed according to the needs of different areas. “It will go to the poorest regions, those with a low HDI [Human Development Index], less developed areas,” he explained. 

He also said the selective tax would be collected precisely for this aim. Braga explained that the idea was to compensate for the harmful consequences of mining. Today, without taxation, what the State does is to curb and prohibit the activity. However, it boosts illegal practices. 

“Instead of having a policy to compensate, we simply prohibit it. We create marginal activity,” he stated.

Braga also emphasized that what he is proposing is a small tax compared to international examples. “If we look at the OECD and Norway, they are quite more radical. We proposed a small percentage to see society’s reaction to it.”

What is this reform?


The tax reform will establish changes mainly to consumption taxes, replacing IPI, PIS, Cofins, ICMS and ISS with a Contribution on Goods and Services (CBS, in Portuguese), which will be managed by the federal government, and a Tax on Goods and Services (IBS, in Portuguese), managed by states and municipalities.

The reform also provides for the creation of funds to compensate states and municipalities that lose part of their revenue during the transition process to the new tax system.

Edited by: Nadini Lopes e Rodrigo Durão Coelho