Brazil Congress Cuts Taxes on Fuels to Soften 25% Price Jump

(Bloomberg, 11.Mar.2022) — Brazil’s congress passed a tax reduction for fuels hours after state-controlled oil producer Petroleo Brasileiro SA caused a stir by increasing diesel and gasoline prices by as much as 25%.

Lawmakers late on Thursday approved a bill that cuts federal taxes for diesel and cooking gas until the end of the year and also changes the way a local tax is levied on fuels. The proposal now goes to President Jair Bolsonaro to be signed into law.

The new legislation seeks to soften fuel price increases as Brazil heads to general elections in October. It comes after Russia’s invasion of Ukraine upended the global oil market, putting additional pressure on Petrobras to make adjustments in the domestic market to avoid losses.

The last time the company raised prices was in January, and the lack of adjustments was making the company’s own board of directors uneasy, two people with direct knowledge of the matter had said.

Earlier on Thursday, Petrobras announced a 25% increase in the price of diesel it sells to distributors, to 4.51 reais a liter ($0.89), and a 19% increase in gasoline prices to 3.86 reais a liter. The measure triggered criticism from politicians including the powerful Lower House Speaker Arthur Lira, who said the increase was a “slap in the face” of Brazilians.

On Friday, Bolsonaro also attacked the state-owned producer for its timing in announcing the price increase, overlapping with the approval of the bill.

“I only regret that Petrobras didn’t wait one more day to announce this adjustment,” he said.

Economy Minister Paulo Guedes said the bill will help mitigate two-thirds of Petrobras’s price increase. The government is monitoring international markets and will adopt additional measures if necessary, Guedes told journalists in Brasilia.

Petrobras has been at the center of the political debate in Brazil, with costlier fuels driving inflation above 10% and hitting influential constituencies such as truckers. Both Bolsonaro and his main rival ahead of the election, former president Luiz Inacio Lula da Silva, have criticized Petrobras for passing the spike in international oil prices to Brazilian consumers.

Congress now will debate a second bill that proposes the creation of a fund to smooth prices and provides gasoline subsidies for poor families.

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By Martha Beck and Daniel Carv