Taxes over revenue and imports (PIS and COFINS)
Producers opting for the fixed value can obtain certain reductions and exemptions of the amounts due, depending on the supplier of raw material or input applicable to the production (for example, acquisition from castor bean producers or from family farmers). Moreover, the entity that sells biodiesel that is subject to the non-cumulative regime of PIS and COFINS is entitled to a 45 percent presumed credit based on the income from the sale in the domestic market or the export of biodiesel.
The Brazilian government edited Decree 7.997/13, which sets forth that, from 1 September 2013 until 31 December 2016, the fixed value of PIS and COFINS by cubic meter of commercialized ethanol shall be increased to BRL21.43 and BRL98.57, respectively.
Despite this, the Brazilian government approved Federal Law n. 12.859/2013 that grants to the producers and importers a presumed credit in the same values, which leads to a practical effect of zero rate of PIS and COFINS. Also, the taxpayers may opt for this new fixed value and the presumed credit in advance (from 8 May 2013).
For distributors of ethanol, the following options are available, depending on the option of the producer or importer:
Ethanol sales carried out by retailers and sales negotiated through the Future & Commodities Exchange (Bolsa de Mercadorias e Futuros or BM&F) are not subject to PIS and COFINS, as long as the commodities’ contracts do not stipulate physical delivery as part of contracts that are financially settled.
Ethanol sales are not subject to Contribution for Intervention in the Economic Domain (Contribuição de Intervenção no Domínio Econômico or CIDE).
Brazil is considered the world’s seventh largest investor in renewable energy. Nationwide, 79.3 percent of the Internal Energy Supply (Oferta Interna de Energia or OIE) is renewable, whereas the world’s average is 20.3 percent.
Furthermore, the National Bank for Economic and Social Development (Banco Nacional do Desenvolvimento Econômico Social or BNDES) provides a variety of financial programs to stimulate the production of renewable energy. The development of the renewable energies in Brazil is increasing, and almost half of the energy consumed in Brazil is now generated by renewable sources.
The actual scenario is very advantageous for renewable energy. The government expectations are that renewable energy may be responsible for 18 GW out of a total increase of 63 GW in the total installed capacity of the segment over the next 10 years.
According to the Ministry of Mines and Energy, Brazil is especially well situated for becoming a major producer of biodiesel. The country contains a vast amount of arable land, much of which has the right soil and climate for growing a variety of oilseeds.
The growth of biodiesel as an alternative energy source in Brazil is supported by Federal Laws 11.097/05 and 13.033/14, which mandate a minimum of 5 percent of biodiesel to be mixed with diesel and the monitoring of this mixture in the marketplace. The Laws also support the funding of R&D for biodiesel and other energy sources, as well as all phases of production, including the acquisition of equipment and technology.
In a related matter, Brazil is one of the most promising countries for wind energy. The first wind energy auction was held at the end of 2009, in which the government bought 1,805 MW of wind energy at a price of BRL148.39/ MWh. Encouraged by the success of this auction, the government continues to hold auctions on an annual basis.
Several other incentives being discussed in the Brazilian scenario are also worth mentioning:
The Brazilian Commission of Infrastructure Services (CI) approved PLS311/09, a federal project law that establishes the Special Regime of Taxation to encourage the development and generation of electric power from alternative sources (Regime Especial de Tributação para o Incentivo ao Desenvolvimento e à Produção de Fontes Alternativas de Energia or REINFA). This project foresees several tax benefits such as exemptions of PIS and COFINS, import taxes and IPI for companies operating under the regime. It is important to emphasize that this is not a law in force, yet. At the present time, it is still awaiting internal procedures in the Federal Senate.
After COP-15, Brazil formalized its commitment to reduce carbon emissions and increased its goal by 2.8 percent. Under the National Policy on Climate Change (law 12.187/09), Brazil has pledged to reduce carbon emissions 38.9 percent by 2020. According to this law, Brazil could grant several tax benefits to encourage the use of renewable energy. At this point in time, these benefits have not yet been implemented.
In 2013, the government created a program of incentives to the ethanol sector. This program involves several benefits to this market that will be implemented soon:
Finally, other general benefits that are not specific to renewables may apply, such as the Special Incentives Program for Infrastructure Development (Regime Especial de Incentivos para o Desenvolvimento da Infra-Estrutura or REIDI), SUDAM/SUDENE incentives, and technology innovation. Each one has its requirements for application and, in some cases, depends on government approval.