South America Calling

Brazil's government is set to change tax rules that favor soybean exports over those of soy meal and soy oil, local business daily Valor Economico reported Friday.

If implemented, the tax realignment may help stem the surge in shipments of beans at the expense of meal and oil seen over the past 15 years.

The crushing industry has long complained about the system of tax exemptions whereby soybeans bought for export are free of the PIS/Cofins sales tax but purchases for crushing and subsequent export as meal and oil are taxed and then partially rebated in the form of credits.

Crushers have built up billions of dollars in credits on the tax, typically charged at 9.25%, during the 15 years this system has been in place.

Until 2012, crushers could offset some of their credits on the sale of soyoil and margarine to the domestic market. But last year, the government cut PIS/Cofins on these items, leaving the industry no effective way of using the credits.

Perversely, last year's move gave crushers a stronger hand in their lobby to change the system and they appear to have finally convinced Brasilia to give it an overhaul.

According to Valor Economico, the federal government is thinking of instituting compensation payments on meal and oil shipments, aimed at partially neutralizing the PIS/Cofins burden.

With this measure, Brasilia hopes to boost the export of value-added items, meal and oil, the growth of which is lagging well behind beans exports.

Brazilian soybean shipments will have grown 150% over the last 12 years, based on 2013-14 projections, while meal shipments will expand just 40%.

The tax realignment would certainly have some effect, although the explosion in bean shipments has more to do with the surge in Chinese demand and Brazil's relative crushing inefficiency compared with Argentina.

ABIOVE, Brazil's soybean crushers association had no immediate comment. However, one government source did confirm talks did advance on the change in the tax treatment.

The tax realignment would certainly stimulate investment in soybean processing and indirectly help ease the port bottlenecks that are hurting the sector so badly at present.

(AG)

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