Brazil’s Oil Export Tax Is Back as Court Overturns Industry Injunction

BRAZIL · ENERGY

Brazil’s 12 percent tax on crude oil exports is back in force after an appeals court overturned the injunction that had suspended it for four days — a win for a government that has already collected nearly R$8 billion (about US$1.6 billion) from the levy.

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The Brazil Oil Export Tax Survives Its Biggest Court Test

Appellate judge Roberto Carvalho Veloso of the TRF-1, the federal regional court for the Brasília region, accepted the government’s appeal on Monday night, 31 August, and suspended the lower-court order that had barred the tax authority from charging the 12 percent levy on crude exports.

The injunction had been granted on Thursday, 27 August, by judge Diego Câmara of the 17th Federal Court of the Federal District, in an action filed by ABEP, the Brazilian Association of Oil and Gas Exploration and Production Companies, whose members include the biggest private producers operating in Brazil.

ABEP argued that the government violated the separation of powers when it renewed the tax through Gecex-Camex, the executive committee of the foreign-trade chamber, after the presidential decree that created the levy — a provisional measure — expired without congressional approval.

Veloso disagreed, at least at this preliminary stage. Keeping the suspension, he wrote, would risk “damage to the economic order and to the planning of exchange-rate and foreign-trade policy, notably in a context of international geopolitical instability,” and could multiply similar decisions across the country.

A Tax Born in Wartime

The levy was created on 12 March as part of the government’s emergency package responding to the Middle East war: a 12 percent export tax on crude oil, a 50 percent export tax on diesel and a subsidy program for road diesel sold in Brazil. The package was issued as a provisional measure, a decree with immediate force that requires a congressional vote within 120 days.

Congress never voted, and the measure lapsed on 9 July. One day later, the Gecex committee re-established the 12 percent rate by resolution, initially for 60 days — a maneuver we covered in our report on the Camex resolution that kept the tax alive. The committee has since extended the levy twice, and it currently runs until November.

According to the government, the tax serves a regulatory purpose: protecting the domestic fuel market from the price shocks of the Middle East war. Its revenue funds subsidies to gasoline and diesel producers and importers, which Brasília says keep the oil rally from reaching Brazilian consumers at the pump.

The sums involved are substantial. Through July, the levy had raised R$7.98 billion (about US$1.55 billion) — money the Treasury can ill afford to lose in a year when every revenue line of the budget is contested.

The Industry’s Case Is Not Dead

Producers argue the tax is, in practice, purely revenue-raising and therefore unconstitutional, since export taxes are meant to be regulatory instruments. They note the state already captures the upside of expensive oil through royalties, special participation charges, production-sharing contracts, corporate income tax and the dividends Petrobras pays to its controlling shareholder, the Union.

Judge Veloso acknowledged the argument but declined to settle it at the injunction stage. The persistence of oil-market instability, he wrote, is a factual matter subject to periodic technical review by the competent body, and “it is not possible, at this stage, to presume a deviation of purpose from the mere renewal of the levy’s term.”

He also leaned on precedent: the TRF-2, the Rio de Janeiro regional court, had already rejected a similar industry challenge in April, recognizing “the full legitimacy of the state response in a context of geopolitical crisis.” That April episode had its own twist — the first version of the injunction granted then was based on three paragraphs of the decree that did not exist.

ABEP can still appeal, and the merits of the case await judgment. But with two regional courts now aligned behind the government, the industry’s legal path has narrowed considerably.

Markets, Subsidies and the November Deadline

The four-day suspension had offered a taste of what repeal would mean. On Friday, Brazilian stocks rose and Petrobras gained 3.0 percent as traders priced in export-tax relief, as we reported in our Friday markets coverage of the court halt. Monday’s reversal takes that relief off the table.

The industry had lobbied for a quieter exit: letting the tax die when its window closed. The finance ministry insisted on keeping it, and the committee obliged — a fight we documented when producers asked for the levy to expire in August.

Attention now turns to November, when the current extension lapses. With oil prices elevated by the war, a pre-election government reluctant to raise fuel prices, and a budget that needs every real of revenue, few in Brasília expect the tax to go quietly — whatever the courts ultimately decide on the merits.

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