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Cabotage Gains New Incentive With Cost Reduction

Cabotage is the transport of goods or passengers between two places in the same country. It originally applied to shipping along coastal routes, port to port, but now applies to aviation, railways, and road transport as well. Cabotage rights are the right of a company from one country to trade in another country.

The Federal Government reduced the import tax for vessels destined for cabotage operations in Brazil. With this, the expectation is to reduce by 40% the cost to import a specific vessel for this segment. The measure is part of “BR do Mar”, a plan that aims to boost maritime cargo transportation along the Brazilian coast.

Today, the import tax rate for vessels is 14%. But with the plans to encourage cabotage, which should be revealed with the disclosure of the BR do Mar, the issue has been analysed by the Foreign Trade Chamber, which approved the elimination of the tax.

The measure was announced and celebrated by the Minister of Infrastructure, Tarcísio Gomes de Freitas. For him, the Government’s decision is “a huge nod to those who are willing to invest in the sector, create jobs, move the entire production chain and contribute to expand the participation of the cabotage matrix in Brazil’s transport matrix”.

For port consultant Fabrizio Pierdomenico, the measure is also welcome.

On the other hand, the consultant points out the risk of the measure having side effects. The idea, according to Pierdomenico, is that the tax exemption lasts from 12 to 24 months.

Other Extreme Measures

Pierdomenico believes that BR do Mar has to resolve other issues to boost cabotage. One of them is the issue of bunker oil, the fuel of navigation, considered one of the obstacles to the development of the modal.

The BR do Mar may be published through a bill or a Provisional Measure.

The idea is that ships carrying cargo through cabotage will have a differentiated treatment, which can guarantee a reduction in bureaucracy and agility compared to long-haul shipping, which will not have a revision of standards and regulation.

Coastal Navigation Incentive Program in Brazil

Coastal navigation is a navigational method concerning the vessel’s movement in relation to the approximate shore, the visible objects in the sea and the sea depths. Coastal navigation demands great experience.

A Coastal Navigation incentive program that the Ministry of Infrastructure intends to launch in August expects to expand the transport of goods along the Brazilian coast.

An interim measure is expected to bring about major changes in the industry’s regulatory framework, which has had an average annual growth of 12.8% over the past decade. Despite the Chinese economic pace, the government estimates that there is still plenty of room for expansion.

The goals of the new program include doubling the volume of containers transported per year from the current 1.35 million to 2.7 million TEUs in 2022, and to increase by 40% the capacity of the maritime fleet dedicated to costal navigation in the next three years.

The plan, which has been called “BR do Mar” by the ministry’s technicians, foresees simultaneous and multi-front initiatives to stimulate the sector: more flexibility in the incorporation / import of new vessel by Brazilian shipping companies, easier use of port terminals aimed at handling cargo, a change in the guarantee system for access to the Merchant Marine Fund and an attempt to end distortions in the charging of ICMS on bunker.

One of the Program’s greatest advances is the encouragement of the establishment of “special operations” – new routes that companies can offer on a trial basis linking one port to another.

To test a domestic route, one will be temporarily free from the requirement to have own fleet to obtain registration as a Brazilian shipping company.

For a maximum period of four years, EBN may charter vessels without this obligation. The idea is to allow a test that paves the way for the establishment of longer lasting routes.

Today one of the biggest obstacles to the development of coastal navigation is the lack of regularity of operations. “We are reversing the logic,” explains the director of the Department of Navigation and Waterways of the Ministry of Infrastructure, Dino Antunes Batista.

Shipping companies will gain an incentive to expand supply – not just special operations – with foreign vessels. They will earn exemption from federal taxes, such as Import Tax and PIS / Cofins, by incorporating ships manufactured abroad.

These taxes increase equipment costs by 40% to 50%, according to government estimates, and will turn into credits.

The credits must necessarily be used in the Brazilian shipbuilding industry. It can be in the repair or maintenance of imported vessels, not just in the construction of ships. But gains from the exemption will need to be “returned” to national shipyards.

Another obstacle that the government intends to unlock with the MP is the guarantees for access to the billionaire Merchant Marine Fund. With different rates of financing for shipbuilding, the fund has been underused.

The risk of loans rests with the credit transfer institutions – BNDES, Banco do Brasil, Caixa, Banco do Nordeste and Banco da Amazônia.

In the new program, the government will put into practice the “unenforceability of the linked account”. This means that a tax on the amount of freight that is collected by the shipping company and goes to itself, in a specific account for any FMM financing, can no longer be frozen or enforced against. As a result, banks will be collateralised and more comfortable with landing credit.

An additional goal of the Program is to match the price of fuel used in international and domestic freight rates. The Union cannot legislate on state taxes, but has found a legal solution to allow the government of each state to clear the tax collection.

Without this, any exemption would have to be endorsed by ever state on the National Council of Finance Policy.