BR do Mar: Common Sense Prevailed

SÃO PAULO – Finally, the Congress managed to overturn the presidential veto on the Tax Regime for the Incentive to Modernize and Expand Port Infrastructure (Reporto), as provided for in the bill that creates the Coastal Shipping Stimulus Program, better known as BR do Mar. According to business associations, if confirmed, the veto would have resulted in an “investment blackout” at the ports. As a result, the validity of Reporto, which had been discontinued at the end of last year, is extended until December 2023.

The disaster would have been so great that the federal government itself understood the folly of the measure and also began to advocate for the veto it had given to Reporto to be overturned, alleging that the regime would contradict the Fiscal Responsibility Law. As is known, Reporto suspends four taxes related to the importation of machinery and equipment by port terminals: Import Tax, Industrialized Products Tax (IPI), Social Integration Program (PIS), and Contribution to Social Security Financing (Cofins).

In addition to extending the duration of Reporto, lawmakers have decided that the benefit will also apply to dredging companies, customs warehouses in secondary zones, and professional training and multifunctional worker training centers for port workers.

According to the justification presented by President Jair Bolsonaro based on guidance from the Ministry of Economy, the proposition would incur in unconstitutionality and be contrary to the public interest since it would result in revenue loss. However, in the end, the guidance of the Ministry of Infrastructure, which advocates for greater investments in ports, roads, and railways, prevailed.

Congress also rejected the veto related to the Additional Freight for the Renewal of the Merchant Marine (AFRMM), which brought rules for calculating freight in navigation. The government argued that the provision would incur in unconstitutionality and be contrary to the public interest because it would entail a waiver of revenues without the presentation of the estimate of the budgetary impact and compensatory measures. For long-haul, coastal, and river and lake navigation (when transporting bulk solids and other cargo in the North and Northeast regions), the rates will be 8%, while for the transportation of liquid bulk in the rivers and lakes of the North and Northeast regions, the rate will be 40%.

The president’s veto of the section that required the crew of these vessels to be composed of at least 2/3 Brazilians was upheld by Congress. With the veto, leased vessels only need to reserve positions such as commander, coastal master, chief engineer, and machine operator for Brazilians.

It should be noted that these decisions by Congress represented a victory for the port sector entities, especially the National Federation of Port Operations (Fenop), which tirelessly sought to show congressmen the importance of the Reporto benefit for port and country growth.

According to calculations by the Brazilian Ports Association (ABTP), without Reporto and with the incidence of those taxes, cargo handling materials would experience a 40% increase in import prices, which could lead to a freeze in investments of around R$2 billion, as there would be a need for contract rebalancing, considering the validity of that tax regime when the contracts were signed. In addition, legal uncertainty would increase, potentially causing an investor exodus from the country.

Given this, what can be concluded is that there was indeed a gesture of greatness by the President of the Republic, who did not hesitate to backtrack on the vetoes he had imposed on various items of the BR do Mar project. From here, what is expected is that the country will greatly benefit from these measures.

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Liana Lourenço Martinelli, lawyer, postgraduate in Business Management and International Trade, is the Manager of Environmental, Social, and Corporate Governance (ESG) at the Fiorde Group, consisting of Fiorde International Logistics, FTA Transport, Warehouses, and Barter International Trade. Email: lianalourenco@fiorde.com.br. Website: fiorde.com.br.

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