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RIO DE JANEIRO, Feb 19 (Reuters) - Brazil’s Rio de Janeiro state plans to scrap new oil and gas production taxes before they are due to take effect in March, on concern the levies would hurt an already weak industry, a source involved in talks told Reuters on Friday.
The tax was passed by the Rio de Janeiro state legislature last year in an effort to ease a growing financial crisis that shuttered hospitals and health clinics and left thousands of state employees without pay. The law though immediately came under attack from industry leaders worried the levies would hit as oil prices fall.
Rio de Janeiro accounts for two-thirds of Brazil’s oil output and 40 percent of its natural gas. The taxes include a 2.71 real ($0.67) a barrel “environmental levy” on all oil and gas output. The government hoped the tax would raise about 1.84 billion reais ($454 million) per year.
The Rio state government also passed an 18 percent goods and service tax on each barrel of oil.
The tax would have pushed the break-even oil price for giant new resources in the so-called “subsalt” region south of Rio de Janeiro to $60 to $80 a barrel from $40 to $50 a barrel, Edmar de Almeida, an economist at the Federal University of Rio de Janeiro said.
Benchmark Brent crude oil fell 2.2 percent in Friday trading to $33.53 a barrel, close to 12-year lows.
The source, who asked for anonymity because talks about ending the tax are secret, said the governor and his cabinet have not yet chosen the legal justification they will use to block the tax law.
$1 = 4.05 Brazilian reais Reporting by Rodrigo Viga Gaier; Writing by Jeb Blount; Editing by Chizu Nomiyama and W Simon