On the very last day of 2021, Brazil’s far-right President Jair Bolsonaro issued a provisional decree establishing a two-year income tax holiday on aircraft leasing. The idea was to cut airlines’ costs and, therefore, push airfares down. In September of last year, flight prices had risen 56 percent over the 12 months prior, ending the year with 18-percent inflation. However, the measure caused an unexpected and negative impact on Brazil’s seemingly unconnected chemicals industry.
According to fiscal responsibility laws, the Brazilian government cannot sacrifice tax revenue without compensating for the measure with budget cuts or tax hikes in other areas. And, to redress the BRL 374 million (USD 69 million) removed from the budget with the aircraft tax breaks, Mr. Bolsonaro put an end to the REIQ stimulus program, created in 2013 to enhance the competitiveness of Brazil’s chemicals industry.
REIQ grants a 3.65-percent cut in PIS and Cofins social security contributions for all first- and...
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