SAO PAULO: Brazil’s government will expand federal tax cuts and subsidies on fuels as it attempts to shield consumers from rising prices due to the war in Iran, broadening measures it had previously unveiled amid the conflict.
President Luiz Inacio Lula da Silva’s administration will temporarily eliminate so-called PIS/Cofins taxes on biodiesel and aviation fuel, while also subsidising local diesel production and the import of cooking gas, Finance Minister Dario Durigan said.
The measures are part of a broader package Lula’s economic team unveiled on Monday as it tries to blunt the effects of a war that is now in its sixth week.
The measures, which will also allow airlines to access credit lines from a national aviation fund, will take effect immediately and initially last two months, according to Planning Minister Bruno Moretti.
The plan includes a subsidy of 1.20 reais per litre for diesel imports, the cost of which will be shared by the federal government and states.
It also created a subsidy of 0.8 reais per litre for diesel produced domestically.
Combined with measures announced last month, the package will increase total subsidies to 1.52 reais per litre for diesel imports and 1.12 reais per litre for domestic production.
The cost will be largely offset by taxes on oil exports and other related revenues, Durigan said.
The additional subsidies will have a fiscal impact of 10 billion reais, but offsets will allow the government to comply with its 2026 budget goal, Durigan said.
Lula’s administration is targeting a modest primary surplus, excluding interest payments, this year.
The extended conflict has caused a sharp rise in global oil prices since it began in late February, forcing governments around the world to respond.
Lula has acted with particular urgency in the face of renewed inflationary concerns ahead of Brazil’s October presidential vote, in which the veteran leftist leader is planning to seek reelection.
“Lula gave us guidance that a war that has nothing to do with Brazil cannot harm our population,” Durigan said at a press conference.
The package builds on initial steps his government took in mid-March, when it temporarily eliminated the PIS/Cofins tax on diesel imports and sales while offering subsidies to producers and importers of the product.
Moretti said the government could raise as much as 40 billion reais in revenue linked to oil.
The government plans to review the measures every 60 days, Moretti said.
He added that it will take additional steps to combat high fuel prices if necessary, and that companies that receive subsidies will be required to pass those cost benefits on to consumers.
Mines and Energy Minister Alexandre Silveira said the government will also impose higher fines for price gouging, and grant a federal agency powers to close gas stations if it determines they are engaged in the practice. — Bloomberg
