Brazil rejects gasoline tax hike in blow to ethanol

Brazilian president Jair Bolsonaro said he will not increase the Cide gasoline tax to help the ailing ethanol sector, despite support for the measure from part of his cabinet.

"I don't think it would be fair to raise the Cide to save the sugar and ethanol sector...at a time when people are losing jobs and having their wages cut," Bolsonaro said yesterday, adding that raising the Cide would break a campaign promise.

The announcement comes after a six-week impasse which pitted the agriculture and energy ministries against the economy ministry.

Brazil's sugar and ethanol industry association Unica said the president's decision was "unexpected" but added that it will continue to search for measures that would help "minimize the damage."

"It's distressing because the sector is on the brink of collapse," Unica president Evandro Gussi told Argus by email.

Last week, agriculture minister Tereza Cristina Correa expressed her frustration that the government had not announced any relief measures for the ethanol industry. Speaking on a webcast yesterday, mines and energy minister Bento Albuquerque said the government is "working to bring balance to the biofuels sector," adding that measures should be announced shortly.

Albuquerque said ethanol demand fell by 49pc in April from the same month of 2019, while gasoline demand dropped by 33pc.

Unica, along with nine other agricultural federations and unions including cooperatives and machinery and equipment makers, sent an open letter to Bolsonaro last month, warning that the ethanol industry would suffer severe damage without measures to offset the drop in demand because of the pandemic and the oil price crash.

In addition to raising the gasoline tax, the sector is also lobbying for a reduction in the PIS/Cofins tax on the biofuel and the creation of an emergency credit line for stocking ethanol.

Agriculture ministry officials said emergency funding for the ethanol sector hinged on a recent bill, which the president signed into law yesterday, that will give the central bank authority to buy commodity-backed notes from mills for cash, providing liquidity to the sector. Mills will be able to put up sugar and ethanol in inventory as physical guarantee in exchange for funding via the use of local agricultural asset certificates.