The Brazilian Sugarcane Industry Association (UNICA) issued the following statement, in response to allegations that a pre-existing VAT (value-added tax) on ethanol in the Brazilian state of São Paulo is somehow equivalent to the return of Brazil’s tariff on imported ethanol, which was zeroed in 2010. The statement should be attributed to UNICA President and CEO, Marcos Jank.
Recent media reports involving a value-added tax on ethanol in the state of São Paulo, known as ICMS (Goods and Services Tax), have included statements implying that this pre-existing tax is somehow equivalent to the reinstatement of Brazil’s federal import tariff on ethanol, which was zeroed by the government at UNICA’s request in 2010.
UNICA would like to clarify that the ICMS is a country-wide tax applied to nearly all products, imported or domestically produced, that has been in place for several years. It is applied by state governments on all anhydrous ethanol.
The ICMS on imported anhydrous ethanol is collected at the port of entry when the product clears customs, and a credit in the same amount is granted to the importer. At any time, the importer can recover the ICMS paid earlier.
In other words, the net tax burden on imported ethanol was and continues to be zero, and imported ethanol continues to receive the same national treatment as domestically produced ethanol. The ICMS applied on blended ethanol by the state of São Paulo, regardless of origin, is 25%.
Contrary to what has been reported, the ICMS on imported ethanol has never been waived. Because Brazilian demand for imported anhydrous ethanol was significantly higher in 2011 than in previous years, the São Paulo state government deferred collection of the ICMS at the customs clearance point to speed up the import process. This measure was introduced with pre-determined start and end dates: October 1st, 2011, and May 31st, 2012, respectively.
The São Paulo state government recently decided to bring forward the end of this deferment period, which will now end on March 1st, 2012. As of that date, importers of anhydrous ethanol will resume payment of the ICMS when the product clears customs, as was the case before October 1st, 2011. A credit in the same amount will be generated for the importer, who is free to recover the tax at any time, a practice that has been in place for several years.
These changes in state government procedure do not introduce any new taxation on ethanol, and have no connection with Brazil’s 20% federal tariff on imported ethanol, which was zeroed in 2010 at UNICA’s request. Imported ethanol continues to receive national treatment and there has been no change in the taxation level on ethanol, imported or domestic, in Brazil or in São Paulo state, and no such changes are expected or under consideration by any level of government in Brazil at this time.