Brazil will go Against the World to Reduce Diesel Tax Environmentalists Warn

Under pressure from truck drivers, Bolsonaro wants to reduce the collection of PIS / Cofins and ICMS on fuel.

Currently considered an international “outcast” on the sustainability agenda, due to the recent advance of deforestation in the Amazon and the loosening of environmental protection mechanisms, Brazil can take another step against the world if the Jair Bolsonaro government takes forward its plan reduce fossil fuel taxes, say environmentalists.

This Monday (8), Petrobras announced its third fuel readjustment in less than 40 days in 2021. With the new round of corrections, gasoline has already accumulated a 22% increase in refineries this year and diesel, 10, 9%.

How are gasoline and diesel prices formed?
Three days earlier, faced with the threat of a strike by truck drivers, Bolsonaro called a meeting with Petrobras president Roberto Castello Branco and a group of ministers to discuss the escalation of fuel prices.

After the meeting, the president said that there will be no interference in Petrobras’ pricing policy. But he announced that the government is planning a bill to change the way of charging the ICMS (Tax on the Circulation of Goods and Services) on fuels and is also studying to reduce the PIS / Cofins on diesel.

Taxes are 44% of the price of gasoline
According to Petrobras, in gasoline, ICMS accounts for 29% of the final price and PIS / Cofins and Cide (Contribution for Intervention in the Economic Domain), for another 15%. The remainder of the amount charged to consumers corresponds to Petrobras’ cost (29%), the distribution and resale margin (12%) and the cost of adding ethanol to the mixture (15%).

In diesel, ICMS accounts for 14% of the final value and PIS / Cofins, for 9%, while Cide is zero for this fuel. Petrobras’ cost here is equivalent to 47% of the final value, which adds up to 16% of the distribution and resale margin and 14% of the cost of adding biodiesel to the mixture.

“The price of the refinery is less than half the price of the pump. That is a fact. The price at the pump is more than double the price of the refinery. What is more expensive? It is taxes and more, too,” Bolsonaro told supporters at the door da Palácio da Alvorada this Monday.

“The federal tax is high, the state tax is high, the profit margin for the distributors is large and the profit margin for the gas stations is also large. So, everyone is wrong, in my understanding, I may be wrong.”

The statement was recorded in a video released on the president’s social networks.

ICMS is a state tax that is levied on the sale of goods and the provision of services. The government is studying two possibilities for change: charging a fixed rate per liter of fuel or charging the tax already at refineries.

The objective, according to Bolsonaro, is to provide more predictability of costs, since currently the tax is variable and each state decides its rate. The proposal, however, must face resistance from the governors, who are afraid of losing revenue.

In the case of the reduction of PIS / Cofins, the obstacle is the loss of revenue from the federal government itself.

“Obviously we can’t do it all at once; it’s expensive, it’s a lot of money. But we have to start the movement in that direction,” said Economy Minister Paulo Guedes, after the meeting on Friday (5/2).

“That was the motto of the campaign; one of the motives in the economy was ‘let’s get the state out of the people’s neck’. So, on the one hand, he [Bolsonaro] would like to zero this federal tax. Today, it is R $ 0.35 ; only that each cent [of tax] is R $ 575 million [of collection]. So, this requires compensation, for the commitment of fiscal responsibility “, added Guedeslia o ambientalista.

Against the world
For Davi Martins, spokesman for Climate and Justice at Greenpeace Brasil, the Brazilian government is going against the world by proposing a tax reduction for fossil fuels.

“It is a mistake to continue giving incentives to fossil fuels that are increasing prices globally, due to the worldwide transition to renewables”, says Martins.

“There is a reduction in supply and an increase in pressure for these fuels to be put aside. So, the Bolsonaro government puts itself in an antagonistic stance to the world position of gradually making the transition to renewables and, what is worse, exempting a collection. that could even be used to accelerate the energy transition here in Brazil “, he says.
According to the Greenpeace spokesman, the measure is also problematic because it would reduce the price of fuel only temporarily.

“In the medium term, this measure is flawed, because the price of fuel is going up and it will not stop. We are seeing demand being reduced and the trend is for the price to rise.”

Martins explains that this happens because the price of oil, an input for the refining of fuels, is defined by the producer countries gathered in OPEC (Organization of Petroleum Exporting Countries) by political decisions, not responding to a dynamic of free market of supply and demand .

“What is happening now is that the oil-producing markets are trying to accelerate their gains to the maximum and this is driving fuel prices upwards, because they are seeing that there is no way out, it is a market that has its days numbered” , assesses the environmentalist.