Government taxes gasoline and ethanol and may raise more – 02/28/2023 – Market

The government of Luiz Inácio Lula da Silva (PT) announced this Tuesday (28) the resumption of the collection of federal taxes on gasoline and ethanol from March 1, eight months after the rates were zeroed by former President Jair Bolsonaro (PL) in an attempt to bring down the price at the pumps on the eve of the 2022 election.

The PIS/Cofins rate will rise to R$0.47 per liter of gasoline and R$0.02 per liter of ethanol — that is, a still partial charge in relation to the levels charged before the exemption. The Cide (Contribution for Intervention in the Economic Domain) remains zero.

The new rates should be valid for four months. In July, if there are no changes in Congress, full charges of R$ 0.69 per liter of gasoline and R$ 0.24 on ethanol will be resumed.

Taxes on diesel, biodiesel and cooking gas remain zero until the end of this year, as had already been foreseen in an MP (provisional measure) signed by Lula on January 1st. Aviation kerosene and CNG (vehicular natural gas) will have their exemption extended for another four months.

The announcement was made by the Ministers of Finance, Fernando Haddad (PT), and of Mines and Energy, Alexandre Silveira (PSD), after days of uncertainty on the subject.

The decision on fuel re-encumbrance was the subject of clashes between the political wing, which wanted to extend the benefit for a longer time, and the economic wing, which defended the resumption of charging to be able to collect more and reduce the country’s deficit.

The final composition of the measure shows a partial victory for Haddad, since the government will return to taxing the two fuels, although at the beginning the rates will be lower than before.

The partial reencumbrance of fuels generates a loss of BRL 6.6 billion for the Federal Revenue compared to the scenario of full resumption of taxes —which would generate an additional collection of BRL 28.9 billion.

To maintain the expectation of revenues linked to fuels throughout the year, the government will tax oil exports at 9.2% for four months. The forecast is to collect BRL 6.66 billion with this tax alone — enough to offset the loss with the partial reencumbrance.

At the press conference, Haddad was keen to point out that the measure is important to help recompose the Federal Budget. “Since before taking office, we have had a clear objective, which is basically to recompose the public budget, from the point of view of expenditure and from the point of view of revenue. The PEC [proposta de emenda à Constituição] of the Transition was approved precisely to guarantee the commitments signed last year [do lado das despesas]”, he said.

“As of January 1st, we began to manage in order to recompose the revenues that were harmed with the decisions taken during the electoral process, by a government that aimed to reverse a situation that was unfavorable to it, and trying to reverse this situation with measures last-minute demagogic remarks, which greatly harmed the country’s sustainability in 2023,” added the minister.

In addition, the government tries to minimize the impact on consumers’ pockets. Hours before Haddad’s announcement, Petrobras announced a 3.9% cut in the price of gasoline at its refineries, which reduces the price of a liter by R$0.13. According to the state-owned company, the fuel will cost R$ 3.18 per liter from this Wednesday (1st).

“With the discount [da Petrobras sobre a gasolina]gives a balance of R$ 0.34 [por litro da gasolina]”, said Haddad. According to him, the government chose to announce the reenactment of taxes this Tuesday precisely to await the company’s decision regarding fuel prices.

“The decision was taken today because we wanted to make the decision after Petrobras said the price for the next month for these two fuels,” he said. “This was accepted by the president, who awaited the manifestation of Petrobras’ price committee, which strictly followed the rules established by the company itself.”

On Monday (27), the minister had already indicated that the government could use a “mattress” within Petrobras’ price policy to compose the solution for fuels.

“Petrobras’s current pricing policy has a cushion that allows fuel prices to increase or decrease, and it can be used,” said Haddad at the time. According to him, this would be the “contribution” of the company.

Also on Monday, the executive secretary of the Treasury, Gabriel Galípolo, traveled to Rio de Janeiro to meet with Petrobras’ board of directors in an attempt to come up with a joint solution to the issue.

According to the minister, however, there was an expectation that the drop in prices could be greater than what was effected by the company. He announced the creation of a working group, made up of Finance, Mines and Energy, Chief of Staff and Planning, to provide greater transparency to the company’s decisions on prices.

Haddad said that “there are even estimates” that cooking gas prices are far above what would be the PPI (import price parity) level. The same goes for gasoline. “Could it be that R$0.13 is the space that existed, or were the specialists who spoke of R$0.25 to R$0.28 more correct?”, questioned the minister.

“We want to know why there are more than 15 days [a Petrobras] could have reduced the price of gasoline and diesel and that was not done”, said Minister Alexandre Silveira.

“The Ministry of Mines and Energy and this working group, which will include Minister Haddad and Minister Rui Costa, will not lack a firm hand so that we can understand a little of this international price policy, which in recent years , in our understanding, had no transparency”, added Silveira.

The new modeling of fuel taxation was discussed between members of the government and Petrobras. In two consecutive days of meetings, Lula received Haddad, Silveira, minister Rui Costa (Casa Civil) and the president of the state-owned company, Jean Paul Prates.

The decision to return to collecting federal taxes on gasoline and ethanol, with different rates to increase the burden on fossil fuels —as the Mônica Bergamo column showed— had already been confirmed by the Ministry of Finance on Monday (27).

On January 1, Lula signed an MP to extend for 60 days the complete exemption of PIS and Cofins on gasoline and ethanol. The original measure expired on December 31, 2022.

According to Haddad, the decision was taken by Lula in the face of “rumors in Brasilia” that there would be an attempted coup d’état. “Those rumors made us be cautious and not encourage those people who were eventually displeased by the election result”, said the minister.

On January 8, coup demonstrators, many of them supporters of former President Jair Bolsonaro, vandalized the headquarters of the three Powers.

Last week, political pressure to maintain the benefit grew, especially with the public defense of the exemption made by the president of the PT, Gleisi Hoffmann. “We are not against taxing fuel, but doing so now is penalizing the consumer, generating more inflation and failing to fulfill a campaign commitment,” she said on a social network last Friday (24).

In the evaluation of PT members, Haddad was in a process of wear and tear, and the decision on fuels, seen as a hybrid, guaranteed a respite to the Minister of Finance.

At the press conference, when asked about Gleisi’s statement, Haddad emphasized that the decision to resume tax collection was taken by Lula. “The president is charged with social responsibility, which he is having, and fiscal responsibility, which he is having. He is a champion of uniting his two agendas,” he said. “He found a very suitable middle ground where the brunt of the decision fell on many actors.”

The minister also said that he had spoken with congressmen on the subject and denied that there was any “jetting down” of Parliament in the negotiations. “All the parliamentarians who spoke to me, with very few exceptions, were in favor of a measure even more drastic than today’s”, he said, stressing that “the last word belongs to Congress”.

Although the return of fuel taxes generates extra pressure on prices in the short term, Haddad stressed in the interview that the measures announced are “beneficial for inflation in the medium and long term”, which would open space for the Central Bank to anticipate the beginning of the cut interest rates – today the basic rate (Selic) is 13.75% per year.

“These measures are being taken even because in the minutes of the Central Bank it is said that this is a condition for the beginning of the reduction of the interest rate in Brazil”, he said.

“There is a credit problem, there is a problem on the horizon of economic growth, the whole country is united around this cause, which is the reduction of interest rates”, he added.

The high level of interest rates in Brazil was the target of recurrent criticism from the Lula government, which created a strain on the relationship with the monetary authority. Tension has eased in the last few days, after signs from BC president Roberto Campos Neto.

UNDERSTAND THE SHUTTLE OF FUEL

The exemption in 2022
In March, the government of Jair Bolsonaro zeroed federal tax rates on diesel and cooking gas. At the end of June, Congress approved, with the support of the government, the total exemption of gasoline and ethanol. The measures would be valid until the end of the year.

The exemption in 2023
An MP (provisional measure) signed by Lula on January 1 extended the exemption of federal taxes, with different deadlines. For diesel, biodiesel and cooking gas, the measure will be valid until the end of 2023. For gasoline and ethanol, the benefit ends on February 28th.

How will it be from now on
Taxation for gasoline and ethanol will be partially resumed from March 1st. The PIS/Cofins rates will be R$0.47 per liter of gasoline and R$0.02 per liter of ethanol, with a duration of four months. Cide will remain zero.

If there are no changes in Congress, the government plans to resume full rates from July. The PIS/Cofins charge would be R$0.69 per liter of gasoline and R$0.24 per liter of ethanol.

Impacts and other measures

The partial reencumbrance of taxes would generate a frustration of BRL 6.6 billion in the revenues forecast by the Ministry of Finance, which expected to raise BRL 28.9 billion with the full resumption of the collection of taxes.

To compensate for this loss, the Lula government decided to tax oil exports at 9.2% for four months. The forecast is to obtain R$ 6.66 billion to cover the hole left by the partial reencumbrance of fuels.