Lula Signs Presiq Chemicals Incentive Program into Law with Vetoes, Tightening Access

Brazilian President Enacts Presiq Program for Chemical Sector

Brazilian President Luiz Inacio Lula da Silva late on Monday signed into law the Presiq (Programa Especial de Sustentabilidade da Indústria Química) chemicals incentive program. The new legislation, which will be in effect from January 1, 2027, to December 31, 2031, aims to bolster the competitiveness and sustainability of Brazil's chemical industry. However, the program was enacted with notable presidential vetoes that will tighten access to its benefits and increase administrative scrutiny.

Presiq is designed as the successor to the existing Reiq (Regime Especial da Indústria Química) program, which is set to expire at the end of 2026. The new framework combines industrial input subsidies with investment-linked credits, targeting industrial operations decarbonization, productivity, and competitiveness goals.

Details of the Incentive Program

The Presiq program is structured to provide substantial financial credits to the chemical sector, totaling up to Brazilian reais (R) 3.0 billion (approximately $536 million) per year. These credits are primarily linked to the Corporate Income Tax (IRPJ) and the Social Contribution on Net Profits (CSLL).

The program features two main modalities:

• Industrial Modality: This provides credits for the acquisition of key chemical raw materials, including petrochemical naphtha and natural gas. This modality offers a 6% tax credit, capped at R$2.5 billion per year, and requires beneficiaries to invest at least 8% of the credit in research and development (R&D).
• Investment Modality: This supports capital expenditures for the expansion or modernization of industrial plants. Credits under this modality can reach up to 3% of the investment value, with an annual cap of R$500 million. A minimum of 10% of this credit must be allocated to R&D initiatives.

Companies seeking to qualify for Presiq must be taxed under the actual profit regime, be in good standing with federal taxes, and maintain at least their January 2025 workforce levels.

Presidential Vetoes and Their Implications

President Lula's signing of Presiq included several significant vetoes that alter the program's original scope. One of the most impactful vetoes removed the provision that would have granted automatic qualification to companies already benefiting from the Reiq program. Consequently, all companies, including current Reiq beneficiaries, will now be required to apply for Presiq, with qualification dependent on regulations issued by the Ministry of Development, Industry, Trade, and Services (MDIC).

The government justified these vetoes by citing concerns over fiscal responsibility and potential unconstitutionality. According to the presidential palace, the removed measures implied a revenue waiver without proper fiscal impact estimates or compensation, which would violate Brazil's fiscal framework.

Other vetoed provisions included:

• Items related to the reduction of PIS and COFINS rates on products sold by the sector under the current Reiq regime.
• Provisions that would have relaxed access to regional development incentives for automotive projects involving the reactivation or expansion of existing plants in the North, Northeast, and Center-West regions.

These vetoes are expected to increase administrative scrutiny and remove an anticipated transition period between Reiq and Presiq, leading to concerns from the industry regarding a potential gap in incentives for 2026.

Industry Reaction and Future Outlook

The Brazilian chemical industry, represented by trade group Abiquim, had intensely lobbied for the Presiq program. While acknowledging the program's approval, Abiquim has expressed concern over the vetoes, particularly the lack of a transition period from Reiq, which could leave many companies without incentives during 2026.

Despite the tighter access, the program is anticipated to have a significant economic impact. Technical studies from Abiquim suggest that the investments stimulated by Presiq could add R$112 billion to Brazil's GDP by 2029, generate up to 1.7 million direct and indirect jobs, and recover R$65.5 billion in tax revenues. The program is also seen as a critical tool to reverse the trend of the chemical industry operating at historically low capacity levels and to reposition it within a global context demanding environmental responsibility.