What’s in a Tax?

UNICA, RFA spar over Brazilian goods and services tax
By Holly Jessen | March 05, 2012

As of March 1, a 25 percent Brazilian goods and services tax, referred to as the ICMS, again applies to imported ethanol in the state of Sao Paulo, which includes the Port of Santos, Brazil’s main port. The Renewable Fuels Association sent a letter to Ambassador Ron Kirk, U.S. Trade Representative, expressing concern over the development. “Because ethanol produced in Sao Paulo is tax exempt, ethanol imported into Sao Paulo from the United States and other areas is at a substantial economic disadvantage,” Bob Dinneen, president and CEO of RFA, said in the Jan. 31 letter. “We believe this action is discriminatory and may—severely and immediately—restrict the exportation of U.S. ethanol to Brazil.”

Although RFA acknowledged that a waiver of Brazil’s 20 percent tariff on imported ethanol has been extended to 2015, the organization asserted that Sao Paulo is “essentially imposing a tariff on almost all the product entering the country from the U.S.” by reinstating the ICMS tax on ethanol. Further, it amounts to a 5 percent increase from the 20 percent tariff to the 25 percent ICMS, Dinneen said.

UNICA, on the other hand, takes exception with the RFA’s view. The Brazilian Sugarcane Industry Association points out that the ICMS was a pre-existing value-added tax that has been in place for several years as a countrywide federal tax, says Marcos Jank, president and CEO of UNICA. Due to significantly higher demand for imported anhydrous ethanol in 2011, the state of Sao Paulo deferred collection of ICMS at customs from Oct. 1, 2011, to May 31. The deferment period was cut short when the state government decided to move up the ending date to March 1, rather than waiting until May 31.  “As of that date, importers of anhydrous ethanol will resume payment of the ICMS when the product clears customs, as was the case before Oct. 1, 2011,” Jank says. “A credit in the same amount will be generated for the importer, who is free to recover the tax at any time, a practice that has been in place for several years.”

The ICMS tax is collected at the port of entry, when the product clears customs, and again when the ethanol is blended. However, when the ICMS is collected at customs, a credit of the same amount is granted to the importer, which the importer can recover at any time. “In other words, the net tax burden on imported ethanol was and continues to be zero, and imported ethanol continues to receive the same national treatment as domestically produced ethanol,” Jank says. “The ICMS applied on blended ethanol by the state of Sao Paulo, regardless of origin, is 25 percent.”  —Holly Jessen