Should the Bill number 407/03 that alters the Value-Added Tax on Sales and Service ("ICMS") approved by the Legislature of the State of Rio de Janeiro be ratified, it shall create to Petrobras a burden of approximately R$ 5.4 billion per year, with the tax being levied both in origin and destination. As a consequence, the Company foresees the following negative impacts:
- Important projects as the construction of rigs in Campos Basin, including the P-54 one, about to be tendered, shall have to be reevaluated jeopardizing production increase and, as a consequence, the auto-sufficiency target forecast for 2006.
- The creation of new employment positions shall become unfeasible (the construction of the rigs P-51 and P-52, for instance, shall create five thousand new work positions) and the future increase of royalties collection jeopardized, as well as governmental interests, taxes and levies to the State of Rio and its producing municipalities.
- The law may increase tax collection in a first moment. However, such increase shall be inhibited in a short time with the suspension of development projects for oil and gas production.
Petrobras would comply with all tax laws and is not questioning how taxes would be charged, however, the company feels that the bill is an unconstitutional, and it shall take reasonable legal actions in connection therewith.
Petrobras hopes that the bill can be re-evaluated and that new alternatives can be found to meet the government's objectives, due to the negative impact the bill would have on the oil industry.