The war between Russia and Ukraine has put Brazil’s dependence on fertilizer imports into the spotlight. This may mean that a tax distortion that has greatly disrupted national production in recent years can find a solution in 2022. But only if the international scenario allows it.
Until last year, the state-level ICMS tax on goods and services was charged on interstate transactions, but not on transactions within the same state. And in the case of products that came from abroad, the import tax was zero. This means that, while the commercialization of fertilizers between Brazilian states was costly, there was no charge on imported products.
In March 2021, Confaz, the national council for fiscal policy, decided that from 2022, an equal tax rate of up to 4 percent would be levied on all operations, internal and interstate. The equivalent rate would also apply to the purchase of fertilizers from abroad.
The 4 percent would be immediately applied in Bahia and Sergipe, the biggest national inputs producers. Implementation would be gradual for other states: a 1 percent increment each year, reaching 4 percent by 2025.
However, the new tax collection has not been properly executed and domestic producers already fear a new distortion. In the last fortnight, Paulo Guedes, the economy minister, said that taxes on fertilizer imports will have to be zeroed if the war in Ukraine escalates, since more than 85 percent of the inputs used in the country are imported.