02 de agosto de 2022
Por Rogerio Jelmayer
Brazil’s supreme court ruled in favor of states’ rights to impose their TFRM fee for oversight of mining exploration and development, opening the door for more tax increases in the sector.
“The supreme court decision has a very negative effect on mining because it leaves space not only for state governments but also for municipalities to impose the TFRM amount they consider adequate,” Paulo Honório de Castro Júnior, head of tax issues at law firm William Freire Advogados, told BNamericas.
The TFRM is charged by mining states such as Minas Gerais, Pará and Amapá. Officially, these states use the proceeds to finance their mining inspection bodies; in practice, there is little control over how they spend the proceeds.
“Goiás state was just waiting for the green light from the supreme court to be able to charge this tax and eight municipalities in Pará state have plans to impose their own TFRM,” said Castro Júnior.
Minas Gerais, Pará and Amapá have been implementing the TFRM for about 10 years, while industries confederation CNI has been trying to block it, alleging it was unconstitutional as only the federal government, not states, has the rights to control the funds.
“With the decision to dismiss the [CNI] actions, the understanding prevailed that the states have the competence to institute fees to carry out inspection,” the supreme court said in a statement.
According to a CNI study, Minas Gerais obtained 317mn reais (US$61mn) through the TFRM in 2019.
Growing tax pressure from states and lawmakers is a top industry concern.
“The big problem in Brazil is that the level of taxes of the mining sector is already high, between 48% and 52% of company profits, but the distribution causes distortions. In Australia, for example, states and local governments keep 60% of the taxes paid by mining companies and the federal government 40%. In Brazil, this proportion is reversed, so states and municipalities are constantly pressing for more taxes,” added Castro Júnior.
The mining sector was among the few that did well during the pandemic, which led to calls for higher taxes to finance relief programs.
But miners claimed the positive results owe to the business cycle and don’t serve as foundation for taxes, as revenues are starting to fall again, so higher taxes could affect investment decisions.
“This decision may not make investments unfeasible, because unfeasible is a very strong word, but it makes it difficult,” Fernando Facury Scaff, a partner at local law firm Silveira Athias Advogados, witch advises mining companies, told BNamericas.