As Brazil enters an election year, legislative actions reflect a strategic adjustment of fiscal policies aimed at fostering political goodwill. Shortly after the Congress approved fiscal adjustments that included cutting tax benefits, the Chamber voted to reduce PIS and Cofins rates specifically for the chemical and petrochemical sectors. This shift underlines how quickly political priorities can change, particularly as politicians aim to gain favor with key industries ahead of elections.

The proposed tax reductions largely favor companies under a special taxation regime known as Reiq, countering previous efforts to introduce a 10% reduction in tax incentives. This decision showcases the powerful influence of lobbying groups, such as Braskem, which stands to benefit substantially from the increased tax incentives. The legislation is anticipated to significantly increase the government's tax expenditure by tripling it from R$ 1.1 billion to R$ 3.2 billion by 2026, raising questions about the long-term implications for Brazil’s fiscal health.

Moreover, this new tax incentive also circumvents recently introduced rules under Brazil's Fiscal Responsibility Law (LRF), which were designed to ensure responsible management of public finances. This latest development not only indicates a potential undermining of fiscal discipline but also highlights the ongoing interplay between electoral politics and economic policymaking in Brazil, as lawmakers navigate the delicate balance between short-term benefits and sustainable fiscal strategies.