Brazil's tax council backs exemption for rail investments

Brazil’s treasury policy council, Confaz, approved a request from the transport ministry to exempt rail projects from the ICMS tax.

Confaz comprises the finance secretaries of all the states plus the federal finance minister.

“This is the biggest incentive [the sector has ever had], a gigantic and unprecedented incentive in the history of Brazil. It focuses on works, equipment, locomotives,” transport minister Renan Filho said in a statement.

According to the ministry, the ICMS tax exemption is likely to fuel demand for rolling stock and engineering works and reduce the costs of undertaking rail projects by 15%.

The exemption had been announced by the transport ministry earlier this month and some resistance from state governments was expected since the ICMS is a tax imposed by the states and most of them are facing fiscal pressures. However, the quick approval surprised even the federal government.

“We achieved a rare understanding by demonstrating to all states that it is much better for Brazil to exempt this investment and benefit from the economic gain it brings than to charge for works that never materialize, because investment in railroads is expensive," said Filho.

The exemption is likely to help the train manufacturing industry to reduce the current 80% level of idleness, the president of rail equipment manufacturers’ association Abifer, Vicente Abate, said in a recent interview with BNamericas.