By Brazil Stock Guide – Brazil’s Senate approved by 59 votes to 3 a complementary bill granting temporary tax relief to chemical and petrochemical companies under the Special Regime for the Chemical Industry (REIQ). The measure, which now heads to presidential sanction, establishes up to R$ 3.1 billion in fiscal support through the end of 2026 and aims to prevent a sudden policy gap before Brazil’s new tax system takes effect in 2027.
Of the total amount, R$ 2 billion represents the ceiling for tax revenue waivers in 2026, while R$ 1.1 billion will fund additional tax credits for petrochemical hubs and other REIQ participants. The new PIS/Pasep and Cofins rates will be set at 1.52% and 7% for taxable events between January 2025 and February 2026, falling to 0.62% and 2.83% from March through December 2026. The benefit also extends to imports of key inputs such as petrochemical naphtha and paraffin.
The legislation formally addresses the gap that led President Luiz Inácio Lula da Silva to partially veto a previous version of the proposal in 2025 due to the absence of a fiscal impact estimate. While the new bill sets explicit caps on tax expenditures, it exempts the measure from recently added requirements under Brazil’s Fiscal Responsibility Law and the 2026 Budget Guidelines Law, including detailed beneficiary estimates, measurable performance targets and monitoring mechanisms.
Lawmakers described the approval as the result of broad cross-party negotiations. Supporters argue the measure will help restore competitiveness to Brazil’s capital-intensive chemical industry, which plays a critical role in supply chains spanning agribusiness, construction, healthcare, energy and manufacturing. The Brazilian Chemical Industry Association (Abiquim) estimates sector idle capacity above 35%, citing rising imports and structurally high costs, particularly for energy and natural gas.
Brazil’s chemical industry is the sixth largest globally, generating annual revenue of approximately $167.8 billion and supporting around 2 million direct and indirect jobs. Industry representatives argue the temporary relief is necessary to preserve domestic production capacity while the broader tax reform is phased in.
The fiscal backdrop remains sensitive. By relaxing certain newly established fiscal safeguards, the measure revives debate over the expansion of tax expenditures at a time when the federal government is attempting to strengthen its fiscal framework and contain primary deficit pressures for 2026. Proponents stress the temporary nature of the policy and the explicit spending cap. Critics warn that expanding tax benefits, even on a capped basis, may complicate fiscal consolidation efforts.
REIQ benefits will expire at the beginning of 2027, when PIS and Cofins are replaced under Brazil’s tax overhaul. Until then, the government is betting that temporary tax relief will reduce idle industrial capacity and maintain investment momentum in one of the country’s most strategic manufacturing segments.