Brazil to reintroduce taxes on gasoline, ethanol

Brazil will gradually add back federal taxes on motor fuels using a new formula that will raise R28.8bn ($5.5bn) for public coffers this year, the finance ministry said today.

The ministry did not detail today the readjustment percentage nor the value per liter of each fuel, but said fossil fuels such as gasoline would have higher taxes, in a signal to the environmental pledges President Luiz Inacio Lula da Silva made on the campaign trail in 2022.

The PIS/Cofins exemption, which covered gasoline and anhydrous ethanol, was backed by far-right former president Jair Bolsonaro to bolster his re-election campaign ahead of the October presidential elections and approved by congress last June.

Initially scheduled until the end of last year, Lula's government extended the measure until 28 February. Finance minister Fernando Haddad called for an end of the exemption to help the cash-strapped government, but members of the government's political wing supported extending the measure by another two months to help control inflation.

The impasse between the economic and political wings means the government is considering a partial increase in gasoline and ethanol prices. But the finance ministry confirmed that R28.8bn would be collected, as laid out in Haddad's plan to reduce the deficit in January.

This year's primary deficit is expected to hit R230bn. According to Brazil's federation of state and district tax authorities Fenafisco, the two-month extension of the gasoline exemption — initially scheduled to expire on 31 December 2022 — cost public coffers around R5bn, while the exemption for ethanol cost around R1bn.

The decision to gradually reintroduce fuel taxes came after a meeting at the Planalto Palace in Brasilia between Lula, chief of staff Rui Costa, Haddad and Petrobras chief executive Jean Paul Prates.

Workers Party leader Gleisi Hoffmann had said on 24 February that Petrobras should change its fuel pricing policy first before fuel taxes are resumed. Petrobras adjusts domestic prices in line with international market prices. Any change to the policy will only be possible after the Petrobras' board of directors changes in April.

Ending the tax break will increase the price of gasoline by R0.69/l and the price of ethanol by R0.24/l, association of fuel importers Abicom said. Inflation would rise by 0.75pc in March with the return of the taxes, according to economist Andre Braz, from the Getulio Vargas Foundation.

Exemptions for diesel and cooking gas (LPG) are guaranteed until 31 December.

By Eléonore Hughes