Congress rushes to extend incentive to Sudam and Sudene – 10/07/2023 – Market

The National Congress is in the final stage of processing to approve the extension until 2028 of tax incentives granted to companies operating in the areas of Sudam (North Region) and Sudene (Northeast), in addition to including Sudeco (Center-West).

Tax exemptions for projects in the North and Northeast regions for 2023 were estimated at R$14.5 billion.

Although there is another project on the topic that includes the need for socio-environmental compensation for benefiting companies, the text already approved by the Chamber and the Senate, pending final analysis, does not contain any requirements.

The current incentive program expires on December 31st.

Sudene (Superintendency of Development of the Northeast, which also includes some municipalities in Minas Gerais and Espírito Santo), Sudam (Superintendency of Development of the Amazon) and Sudeco (Superintendence of Development of the Center-West) are federal agencies that have the objective to promote growth in the regions covered.

For Alessandra Cardoso, political advisor at Inesc (Institute of Socioeconomic Studies), the programs cause damage to the public coffers “without a credible assessment of effectiveness”.

“Renewing them again, in a critical fiscal scenario and without any environmental and social criteria, would be absurd proof of the lack of commitment to the economic and ecological transformation that is talked about so much in the speech. Extending the same incentives to the Central-West region It’s an even more irresponsible measure,” he says.

A study by the institute shows that Sudam and Sudene, which cover the Legal Amazon region, have served to mainly benefit activities with great potential for negative impact on the environment.

In total, of the R$42.3 billion in exemption distributed, R$22 billion (54%) was directed to mining, energy and oil.

The survey shows that, from 2010 to 2022, among the five economic activities most covered by projects approved by Sudam are infrastructure (which includes energy and gas projects), minerals and chemicals (which includes the production of oil and its derivatives).

Tax incentives for the Northeast and the Amazon originate in the 1960s. The 1988 Constitution establishes in its article 151 the permission to “grant tax incentives designed to promote the balance of socioeconomic development between the different regions of the country”.

In 2001, under the administration of then President Fernando Henrique Cardoso (PSDB), provisional measure 2,199-14 was issued, which granted until 2013 a 75% reduction in Income Tax calculated based on the profit from exploration and use of 30% of the Tax of Income due for reinvestment by companies.

These incentives have been extended by Congress since then, the last being in the transition between the Michel Temer (MDB) and Jair Bolsonaro (PL) governments, at the end of 2018, when the current deadline was established, December 31, 2023.

Bill 4,416/2021, which extends benefits to 2028, was approved by the Chamber in August. It was authored by deputy Júlio Cesar (PSD-PI).

In the Senate, the text was approved in about a month. Senator Beto Faro (PT-PA) presented an amendment (and also a project) establishing that benefiting companies develop activities compatible “with tackling poverty and land concentration, the transition to a low-carbon economy, valuing biodiversity” and in line with the commitments assumed by Brazil in the Paris Climate Agreement.

The amendment, however, was rejected by the rapporteur, senator Otto Alencar (PSD-BA). The project presented has already received a favorable opinion, but is still awaiting a vote in committee.

The rapporteur, however, accepted the ruralist group’s proposal and included Sudeco in the list of beneficiaries. Because of this amendment, the text had to be returned for further analysis by the deputies.

On the 26th, deputy Júlio Cesar presented a request to process the proposal on an urgent basis. The request was signed by leaders of the two main party blocs of the House, Doutor Luizinho (PP-RJ) and Antonio Brito (PSD-BA).

After approval by the Chamber, the project will go to President Luiz Inácio Lula da Silva (PT) for sanction or veto.

In 2019, Bolsonaro sanctioned the extension until 2023, but vetoed the inclusion of Sudeco, also approved at that time by Congress.

Paulo Guedes’ economic team (Economy) was against it at the time, but ended up agreeing to the extension so as not to upset the North and Northeast Congressional benches in the midst of negotiations for pension reform.

A Sheet He contacted the Ministry of Finance, which has been discussing the issue with congressmen, but the department stated that it does not comment on projects in progress.

Julio Cesar said he was in favor of the inclusion of Sudeco, stating that the rejection of this amendment by the Senate would create discomfort with the ruralist bench.

In his opinion, he states that, if the incentives are terminated, “the investment capacity of companies located in the North and Northeast will drastically reduce”.

Otto Alencar wrote in his report that he supports the extension because “the economic and social indicators in the North and Northeast regions are still lower than those in the rest of the country”.

Regarding Sudeco, he said he incorporated the amendment into the project for reasons of equality. The rejection of the amendment with socio-environmental requirements occurred because, “although its objective is indisputably positive”, he stated that the counterparts would have to be more clearly defined.

Julius Caesar told Sheet that at no point during the proceedings in the Chamber was the proposal to require socio-environmental compensation for the granting of benefits suggested.

Reports on the project in Congress reproduce data from Sudene according to which, from 2013 to 2020, more than 2,900 projects were approved, with 1.2 million jobs created in investments totaling R$248 billion. The tax waiver cited in the period was R$30 billion.