Political pressure grows to keep zero tax on gasoline, but Fazenda resists – 02/24/2023 – Market

A few days before the end of the exemption of federal taxes on gasoline and ethanol, political pressure to maintain the benefit escalated and won the public support of PT president Gleisi Hoffmann. At the other end of the tug of war is the Ministry of Finance, which resists extending the measure to avoid widening the fiscal gap.

The background to the impasse is the fear of the political wing in relation to the impact of the resumption of taxation, scheduled for March 1st, on consumers’ pockets. Before the exemption, the rates were up to R$ 0.69 per liter of gasoline and R$ 0.24 per liter of ethanol.

Assistants of President Luiz Inácio Lula da Silva (PT) are evaluating a range of options, but at least two have gained more strength: extending the exemption for another two months —until the end of April— or raising taxes gradually.

The Chief Executive addressed the issue in a meeting this Friday morning (24) with ministers Rui Costa (Casa Civil) and Alexandre Silveira (Mines and Energy) and the president of Petrobras, Jean Paul Prates. The executive secretary of Finance, Gabriel Galipolo, also participated in the meeting, since the holder of the portfolio, Fernando Haddad, is in India for a G-20 meeting.

According to Sheet found, the meeting ended without a solution. The forecast is that there will be a new meeting between the president and ministers on Monday (27) to discuss a way out of the impasse.

Hours after the end of the agenda between Lula and ministers, the PT president took a stand for the continuation of the exemption in a publication on Twitter.

“Before talking about resuming taxes on fuel, it is necessary to define a new price policy for Petrobras. This will be possible from April, when the Board of Directors is renewed, with people committed to rebuilding the company and its role for the country,” said Gleisi.

“We are not against taxing fuel, but doing so now is penalizing the consumer, generating more inflation and failing to fulfill the campaign commitment,” he added.

At the beginning of the year, Haddad went so far as to say that the 60-day extension of the exemption on gasoline and ethanol sought to create time for Prates to take charge of Petrobras and find, together with the government, a solution to the fuel issue.

The same argument is now being repeated by the president of the PT, extending this deadline to April.

According to reports, Prates also tends to agree with the extension of the benefit, since this measure would give him time to compose his new board and propose a new design for the company’s pricing policy.

If the taxes go up next week, the assessment is that the pressure will just change the target, falling on Petrobras, which still hasn’t managed to make progress on the subject —Prates took office at the end of January, but still hasn’t been able to change other parts of the company’s command.

In 2022, he was the rapporteur for a bill that created an equalization account, which could be supplied with resources from royalties, Petrobras dividends and other funds related to the oil sector —which today irrigate the Union’s cash.

The Treasury is resisting the extension of the tax exemption on gasoline and ethanol because the resumption of taxes from March 1 guarantees an increase of R$ 28.9 billion in federal collection – a significant amount at a time when the minister is working to reduce the gap accounts and gain the market’s trust.

The exemption on diesel, biodiesel and cooking gas has already been extended until December 31 of this year and there is no forecast for change.

The political wing, in turn, fears that the increase in taxes on gasoline and ethanol will boost prices at the pumps, harm Lula’s popularity and erode his political capital at the beginning of his term. There is also concern about the impact on inflation.

Another group defends the resumption of taxation in a phased manner, to smooth the rise in prices. There are still those who defend the need to assess the best moment for the reencumbrance, and it is advisable to link the decision to the value of barrels of oil abroad, in order to try to minimize the impact on consumers’ pockets.

The MP to extend the complete exemption of PIS and Cofins on fuels was signed by Lula on January 1st. The measure was initially adopted by his predecessor, Jair Bolsonaro (PL), in 2022, in an attempt to contain the rise in pump prices in the middle of an election year.

Already at that time, the maintenance of zero rates faced resistance from the Finance Minister’s team, who wanted to recover a larger portion of the collection. The counterpoint came precisely from the government’s political wing, which pressed for the extension of the tax benefit with an eye on a more prolonged impact on consumers’ pockets.

In January, however, Haddad did not rule out the possibility of Lula extending the measure, reducing potential revenues, but maintaining relief for consumers’ pockets.

“This does not prevent the president from reassessing these deadlines, depending on the political assessment he makes, which requires continuing on a course of pacifying this country, and also in relation to these conversations that we are going to have with the monetary authority [Banco Central]”, said the minister.