Brazil to replace gasoline subsidy with tax relief

The Brazilian federal government plans to replace the current R$ 0.44 gasoline subsidy with a tax relief mechanism to maintain lower fuel prices. According to Planning and Budget Minister Bruno Moretti, the current subsidy, established via a provisional measure in May, is set to expire this Wednesday (9).

To sustain the relief, the government intends to use a presidential decree and leverage a complementary law approved by Congress in August. This law allows the use of extraordinary petroleum revenues to reduce federal taxes on fuels. While the final value of the tax relief is to be determined by President Luiz Inácio Lula da Silva, it is expected to remain at a similar level to the existing subsidy.

The decision will also impact ethanol. Brazilian law requires maintaining a competitive advantage for biofuels; if federal tax cuts on gasoline reach or exceed 30%, federal tax rates on ethanol must be reduced to zero.