The Ministry of Mines and Energy (MME) advocates for a zero tax rate on the Selective Tax for natural gas across all uses, warning of negative impacts on the economy, the energy transition, and competitiveness.
The Ministry of Mines and Energy (MME) is at the center of a crucial tax discussion for the energy sector, proposing that natural gas be fully exempt from the Selective Tax (IS). The MME‘s request extends to all consumption segments, including commercial and residential, expanding the zero rates already provided by law for industrial and transportation uses.
The ministry’s position was formalized in a technical note sent to the Ministry of Finance, emphasizing that applying the IS to natural gas could generate significant distortions. The central argument is that the tax, with its environmental and regulatory purpose, would end up burdening a less polluting energy source, discouraging its adoption and increasing costs throughout the economic chain.
The discussion on natural gas taxation gains relevance in the context of the Consumption Tax Reform, established by Constitutional Amendment No. 132/2023. The Selective Tax (IS), provided for in this reform, aims to discourage the consumption of goods and services considered harmful to health or the environment. Its nature is extra-fiscal, seeking to guide behaviors and not primarily to raise revenue, penalizing products with a greater negative impact and, in theory, benefiting more sustainable alternatives.
Contrary to this logic, the MME argues that natural gas, being the fossil fuel with the lowest emission intensity among the alternatives analyzed, could be unfairly penalized. The ministry argues that it is a cleaner option than LPG, fuel oil, and diesel, and its taxation would make it unfeasible to replace these more polluting sources, going against the environmental objective of the tax itself.
Expansion of Zero Rate: The MME’s Argument
The MME details that the exemption already granted for industrial and vehicle use of natural gas should be extended to commercial and residential uses. The secretariat points out the greater efficiency and economy of natural gas in various commercial applications, such as industrial kitchens and large-scale water heating, compared to electricity. Taxation in this scenario could encourage a return to less efficient or more polluting sources.
Although the commercial and residential segments together represent about 3.5% of Brazil’s total natural gas consumption (with 0.91 million m³/day and 1.59 million m³/day, respectively, in 2025), the MME highlights the potential impact. The industrial sector leads consumption, with 55.6% (almost 40 million m³/day), followed by electricity generation (32.4% or 23.3 million m³/day) and automotive (5.6% or 4 million m³/day).
Operational and Economic Risks for the Supply Chain
One of the most critical points raised by the MME concerns the operationalization of the Selective Tax. The law provides that the taxable event may occur upon the first supply of the good. However, the ministry warns that, at this initial stage, it is almost impossible to identify the final destination of the gas, especially in a market with multiple marketers.
This difficulty would create the risk that the IS would be charged broadly, affecting operations that would subsequently be destined for consumers entitled to the zero rate. The ministry expresses great concern:
“The incidence of the Selective Tax on specific consumption segments could lead, in the worst-case scenario, to its incidence across the entire natural gas market. […] Energy is the basis of any economy. Therefore, additional costs applied to energy resources, including natural gas, are propagated throughout the economy, potentially harming the competitiveness of national industry and increasing household expenses.”
Such a scenario would compromise both energy policy and the effectiveness of the Selective Tax itself, preventing industrial and vehicle consumers from benefiting from the exemption.
Contradictions with Natural Gas Market Liberalization
The technical note also addresses the possible contradiction between the application of the IS and the process of opening up the natural gas market. The MME argues that taxation could increase the complexity of transactions, hindering the development of a freer and more competitive market environment, as advocated by the Gas Law, with its entry and exit contracting model.
The concern extends to the “Gás para Empregar” (Gas to Employ) program, which seeks to enable the utilization of natural gas produced in Brazil and reduce costs for strategic sectors, such as the nitrogenous fertilizer industry. Uncertainties regarding the application of the IS could undermine these objectives, generating additional costs and compromising competitiveness.
Tax Disparity Between Natural Gas and LPG
Another point of attention for the MME is the difference in tax treatment between natural gas and LPG (Liquefied Petroleum Gas). While natural gas is listed for the incidence of the Selective Tax, LPG is not included. This disparity is seen as an environmental distortion, as natural gas emits approximately 12.5% less CO₂ per unit of energy than LPG.
For the ministry, the current structure paradoxically incentivizes the consumption of a fuel with higher emission intensity over a cleaner alternative, contradicting the logic of a sustainableenergy transition.
Natural Gas in the Energy Transition
The MME‘s advocacy for a zero tax rate on natural gas is intrinsically linked to the strategic role of natural gas in Brazil’s energy transition. The ministry emphasizes that the fuel is vital for replacing more polluting sources and for complementing the generation from intermittent renewable sources, such as solar and wind. Gas-fired power plants, with their flexibility, ensure stability in the electricity system during periods of lower renewable availability.
Furthermore, the MME highlights the potential of the natural gas infrastructure to drive the expansion of biomethane and, in the future, low-carbon hydrogen, also integrating with carbon capture, utilization, and storage (CCUS) technologies, essential for a low-carbon economy.
Reaffirmation of Position and Precedents
This is not the first time the MME has spoken out on the issue. In 2024, the ministry had already alerted the Ministry of Finance about the risk of the Selective Tax increasing the cost of thermal generation and reducing the competitiveness of the oil and gas sector. The new technical note reaffirms this concern but also points out that Article 423 of the Complementary Law can be interpreted to include electricity generation among the uses with a zero rate for natural gas.
The ministry invokes the Federal Constitution, which already prohibits the incidence of the Selective Tax on exports and operations with electricity, reinforcing the importance of natural gas as a pillar of security and flexibility for the expansion of renewable sources, vital for the stability and predictability of the national electricity supply.
The MME‘s defense of a zero tax rate for the Selective Tax on natural gas represents a turning point in the regulation of the Tax Reform. The Ministry of Finance‘s decision will have vast implications for energy prices, the competitiveness of national industry, costs for consumers, and, most importantly, for the trajectory of Brazil’s energy transition. The debate, therefore, goes beyond the fiscal sphere, directly touching upon the country’s strategy for a more sustainable and economically viable future.
