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The Brazilian federal government issued a provisional measure on Thursday creating new export taxes on petroleum and diesel fuel, in an effort to contain potential price increases at the pump following escalating tensions in the Middle East stemming from military actions by the United States and Israel in Iran. The measure likewise eliminates PIS and COFINS taxes on diesel oil. The estimated impact of the tax benefit and a subsidy provided to producers is BRL 30 billion, according to the Ministry of Finance, which plans to offset it with revenue generated by the new export taxes.
- Keeping Watch: Government intends to monitor abusive increases in the price of diesel
- To Hold Prices: Government zeroes PIS and COFINS on diesel due to the war
According to the text, the export of crude oil will now be subject to a 12% tax, whereas diesel exports will face a 50% tax rate. The Provisional Measure also includes a subsidy of BRL 0.32 per liter to producers and importers of diesel, which is expected to be passed on to consumers, with penalties for distributors that do not comply. The export taxes are temporary in nature.
Combined, the subsidy created by the Provisional Measure and the tax waiver on diesel are expected to result in a reduction of BRL 0.64 in the final price per liter of fuel, according to government calculations. The program carries a cost of BRL 30 billion through the end of this year. However, Finance Minister Fernando Haddad stated that the measures will not have a negative fiscal impact, referring to the expectation that losses will be offset by revenue from the export tax.
— The waiver in PIS and Cofins is in the order of BRL 20 billion, and the subsidy is in the order of BRL 10 billion (in cost). There is no fiscal impact either positive or negative — Haddad affirmed.
The tax on petroleum is expected to generate approximately BRL 15.6 billion in revenue over four months, according to estimates from the economic team. If the MP is approved and remains in effect until December, the amount will offset the loss of revenue. The measure, however, could be revoked before that deadline if the situation in the Middle East stabilizes.
The 50% tariff on diesel is preventative, designed to discourage the export of fuel amid rising international crude oil prices. Currently, Brazil does not export significant amounts of this fuel and relies on imports to meet domestic demand.
The goal of the new tax is to prevent companies from exporting subsidized diesel, which could create market distortions.
The subsidy will function as financial compensation to reduce some of the costs for companies and attempt to limit the pass-through of rising international oil prices to the consumer.
To receive the benefit, companies will need to join the program and follow a reference price defined by the National Petroleum Agency (ANP). If diesel is sold above this value, the subsidy will not be paid.
The program could last until December 31, 2026, with a total limit of BRL 10 billion in public funds.
The measure published Thursday also zeroes the PIS and COFINS taxes on diesel, both on import and on the commercialization of the fuel. The reduction is also temporary. The tax relief is expected to result in a loss of revenue of approximately BRL 20 billion per year, equivalent to about BRL 1.7 billion per month. Considering the four months initially foreseen for the measure, the fiscal impact would be around BRL 6.7 billion.
The text also establishes fines of up to BRL 500 million for anyone who “abusively raises the prices of fuels, biofuels and petroleum derivatives, being aggravated in situations of geopolitical conflicts or calamity.” The inspection will be carried out by the National Petroleum Agency (ANP) according to parameters that will still be disclosed by the government, according to the Minister of Mines and Energy, Alexandre Silveira.
