End of Reporto: a Deterrent

The presidential veto of Reporto, a tax and fiscal benefit that exempted investments in ports and railways, which had been included by the National Congress in the BR do Mar, a bill that provides for a coastal shipping incentive program, is another contribution from the government to worsen the situation of port infrastructure. As known, Reporto, created in 2004, had been successively renewed until it expired in 2020, which had already been discouraging private investments in the sector. With this government decision, investments in the port sector will become more expensive because there will be an inevitable reduction in purchasing power for machinery, equipment, and other necessary assets for port and railway infrastructure. According to the private sector, the discontinuity of the regime starting in 2022 will result in taxation that can, in some cases, reach up to 42% on the purchase of port equipment. Obviously, this will lead to a slowdown in investments in the restructuring and expansion of port terminals and railways. In fact, according to private sector calculations, at least R$ 2 billion will not be invested, and there will be a savings of only 0.01% in tax revenue in the Federal Budget. Reporto, as the benefit came to be known, would guarantee exemption from the Tax on Industrialized Products (IPI), the Social Integration Program (PIS), and the Contribution for the Financing of Social Security (Cofins) for the purchase of machinery and equipment, such as trains and container cranes, as well as the suspension of the collection of Import Tax on items that do not have domestic counterparts. The tax relief could also include the State Tax on Circulation of Goods and Services (ICMS). To support the presidential veto, the Ministry of Economy argued that all special regimes should be addressed together as part of a planned tax reform. However, the bills proposing this tax reform are practically stalled in the Chamber of Deputies and the Senate. In a year when elections for deputies, senators, governors, and the president will be held, it is almost certain that this decision of Congress will be postponed to 2023. It doesn’t take much imagination to conclude that the efforts of the Ministry of Infrastructure, within the current government, may have been in vain in an attempt to reshape the archaic framework of the country’s logistics system. After all, the government conducted 121 auctions representing R$ 650 billion in investments in highways, railways, ports, and airports. The expectation was that the private sector would take advantage of this initiative to make significant investments. After all, the renewal of Reporto was considered essential because recent railway concessions and new contracts for port terminal leases took this fiscal benefit into account in calculating required investments. Now, without Reporto, the private sector calculates that the application of taxes could increase the cost of these investments by up to 52%. And obviously, there will be a reduction in the number of projects included and fewer interventions in the refurbishment of private port terminals (TUPs) and new railways authorized by the government. In the railway sector, estimates were that Reporto would keep investment costs R$ 3.2 billion cheaper over five years. From the government’s perspective, the reasons for the veto were based on the fact that Reporto would imply a loss of revenue, which would go against the constitutional amendment that progressively reduces federal tax incentives and benefits. It would also allow for the possibility of diverting funds for other purposes, which would contradict the guidelines of the Federal Court of Accounts (TCU) for proving the amounts exempted and their respective return to society. In other words: the government’s decision to approve BR do Mar without the inclusion of Reporto leaves in doubt the effectiveness that this legislation may have, which, in principle, aims to stimulate navigation between Brazilian ports with the goal, among others, of reducing the use of the road network. And to establish a better balance in the transportation matrix, in which, according to data from the National Confederation of Transport (CNT), the road sector has the largest share, accounting for 61% of cargo, while the rail sector accounts for 21%. The remaining cargo is distributed as 12% by coastal shipping, 4% by pipelines, 2% by waterways, and less than 1% by air transport. By following the Ministry of Economy’s argument, the presidential veto also represented a deterrent to the work carried out by the Ministry of Infrastructure, which, after all, was considered one of the few sectors in which the government was doing well. Furthermore, it could contribute to keeping the country off the radar of foreign investors. Therefore, the remaining hope is that the presidential veto will be overturned by the National Congress.

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Liana Lourenço Martinelli, lawyer, postgraduate in Business Management and International Trade, is the Institutional Relations Manager of the Fiorde Group, composed of Fiorde International Logistics, FTA Transport, and Warehouses, and Barter International Trade. Email: fiorde@fiorde.com.br. Website: fiorde.com.br

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