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Reports Say Brazil’s New Oil Tax Dead in Water

A new oil and gas tax package introduced in late December and launching high-level disputes with foreign energy companies may be dead in the water, according to media reports citing unnamed sources.

Specifically, the new tax on oil services oversight would see a levy of US$0.70 per barrel of oil produced in the Brazilian state of Rio de Janeiro, applied to the reference price for each well’s oil set by Brazil’s regulatory, ANP.

The state of Rio de Janeiro is responsible for 68% of Brazil’s oil production and 44% of its natural gas production.

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All in all, the package would earn the state government some US$5.5 billion in revenue, but now—just weeks before they were set the take effect, sources in the government are reportedly saying that they won’t go through with it.

Brazilian state of Rio de Janeiro state plans to scrap new oil and gas production taxes before they are due to take effect next month. Due the concern of the industry that the tax would hurt an already weak economy.

According to an unnamed source cited by Reuters news agency, the government has decided not to implement the tax package next month as planned, because it would push the break-even price on a barrel of pre-salt oil to $60-$80 per barrel. Right now, the break-even price is about $40-$50 per barrel.

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The state government has announced a projected increase in revenue of about US$ 5.5 billion with the extra taxes if they are passed. The state also imposed an 18 percent goods and services tax on each barrel of oil or natural gas equivalent produced. The tax would be applied on the reference price for each well's oil set by Brazil's oil regulator, ANP.

Brazil is suffering one of its worst recessions, and the tax was intended to help lift the country out of crisis at a time when public salaries are not being paid and public services are stretched to the breaking point.

By Charles Kennedy

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