Changes In Tax Structure In Brazil Will Lead To An Increase In The Prices Of Ethanol And Gasoline

Gasoline And Ethanol Taxes To Be Reintroduced By Brazil

The finance ministry stated that Brazil is slowly adding back federal taxes on motor fuel, applying a new formula that will raise R28.8bn (USD 5.5bn) for this year's public coffers.

The ministry didn't describe the percentage of readjustment nor the per-litre value of each fuel, but stated that fossil fuels like gasoline would have increased taxes in an indication of the environmental pledges made on the campaign trail by President Luiz Inacio Lula da Silva in 2022.

The exemption of PIS/Cofins that covers gasoline and anhydrous ethanol was supported by Jair Bolsonaro, the far-right former president, to boost his re-election campaign before the approaching October presidential elections and authorised by congress the previous June.

Request Access For Regular Price Update of Ethanol

Previously scheduled till the end of last year, the measure was extended until 28 February by Lula's government. Fernando Haddad, the finance minister, asked for terminating the exemption to assist the cash-strapped government, but the government's political wing members helped extend the measure by extra two months to help manage inflation.

The deadlock between the economic and political wings implies that the government is contemplating a biased increase in the prices of gasoline and ethanol. However, the finance ministry assured that R28.8bn will be collected, as mentioned in Haddad's objective to lower the deficit in January.

The primary deficit for the year is anticipated to hit R230bn. As per the federation of state and district tax authorities Brazil, Fenafisco, the two-month extension for the exemption of gasoline originally planned to expire on 31 December 2022 - cost public coffers about R5bn, whereas the ethanol cost exemption is about R1bn.

Request Access For Regular Price Update of Gasoline

The plan for slowly reintroducing fuel taxes followed after a discussion between chief of staff Rui Costa, Lula and Haddad and Petrobras chief executive Jean-Paul Prates at the Planalto Palace in Brasilia.

Gleisi Hoffmann, leader of the Workers Party, stated on 24 February that Petrobras need to first revise its fuel pricing policy before the resumption of fuel taxes. Domestic prices are adjusted by Petrobras to align with the international market prices. Any policy changes would be possible only after the Petrobras' board of directors changes in April.

Completing, the tax break will give rise to gasoline prices by R0.69/l and ethanol prices by R0.24/l, as per Abicom, the association of fuel importers. In March, the inflation would rise by 0.75pc along with tax returns, as per Andre Braz, an economist from the Getulio Vargas Foundation.

Diesel and cooking gas (LPG) Exemptions are insured until December 31st.

Ethanol Imports Tariff Suspended By Brazil

As per the Economy Ministry officials, the import tax on ethanol in Brazil was temporarily suspended as of March 23 till 2022-end.

The government stated that the measure would help raise the prices of fuel and, as a result, support high domestic inflation.

60 percent of Brazil's ethanol imports are sourced from the United States.

The US Grains Council, Growth Energy and the Renewable Fuels Association leaders stated that they were content after seeing the brief elimination of the 18 percent tariff.

The groups stated that they have been working on the issue for several years in discussions and correspondence with officials from Washington to Brasilia. This decision is welcomed and seen as an opportunity to resume meetings with Brazil to extend the global usage of low-carbon ethanol, lower barriers to trade and boost its importance in energy debates.

According to this Procurement Resource article, the taxes on gasoline and ethanol will be reintroduced by Brazil. As per the finance ministry, Brazil is slowly adding back federal taxes on motor fuel (that covers gasoline and anhydrous ethanol).

Read More About Gasoline and Ethanol Production Cost Reports - REQUEST FREE SAMPLE COPY IN PDF

The plan for slowly reintroducing fuel taxes followed after a discussion between chief of staff Rui Costa, Lula and Haddad and Petrobras chief executive Jean-Paul Prates at the Planalto Palace in Brasilia. However, Gleisi Hoffmann, leader of the Workers Party, stated that the fuel pricing policy first needs to be revised before the resumption of fuel taxes, and any policy changes would be possible only after the Petrobras' board of directors’ changes in April.