Ethical Sugar - Brazil Govt Tightens Tax Rules On Ethanol Producers.

Dow Jones - Monday 7 January 2008

Brazil's federal government is tightening the rules on ethanol producers for the PIS/Cofins social security tax, daily financial newspaper Gazeta Mercantil reported Monday.

The new measure was created to try to eradicate tax evasion, which is often practiced by ethanol distributors, the Brazilian federal tax office said, according to Gazeta.

"The measure will not lead to an increase or decrease in the tax," said Brazil's assistant federal tax secretary, Carlos Alberto Barreto.

PIS/Cofins taxes are currently 3.65%. The new rate for ethanol still needs to be determined by the government, the newspaper reported.

Jefferson Rodrigues, coordinator at the federal tax office, estimated thataround 2 billion Brazilian reals ($1.1 billion) a year is collected from ethanol producers, while between BRL15 million and BRL100 million a year is lost due to unpaid taxes, the newspaper reported.

The tax change will focus on ethano l distributors rather than being divided among producers, distributors and retailers.

Brazil's federal government published the new measures on Thursday. They will come into force in 90 days.

The new measure brings ethanol producers in line with the oil industry, where PIS/Cofins taxes are charged only on the refineries.

Adhemar Altieri, head of corporate communications at the Union of Sugarcane Industries, or Unica, told Dow Jones Newswires that it is still evaluating the new tax measures.

"The issue is very complex and needs clarity about how the new rules will function," Altieri said Monday.

Brazil is the world's leading ethanol exporter and top producer of sugarcane.