Brazilian states to freeze tax on fuels

Brazilian states announced they will freeze the rate of ICMS goods and services tax charged on fuels for the next 90 days, in an attempt to curb skyrocketing diesel and gasoline prices. 

ICMS levied on fuels has become a key political battle, with President Jair Bolsonaro blaming rising prices at the pump on the tax — which is set and collected by state governments. The quarrel made it to Congress, with the lower house approving a bill altering the way the tax is calculated, setting a fixed value per liter as opposed to the existing variable model. 

The decision may be an attempt to buy time and prevent the bill from moving forward in the Senate. Any changes to ICMS rates could have a severe effect on states’ finances, as the tax makes up some 85 percent of their total revenue. On the other hand, fuel prices are becoming a popularity sink for politicians as a liter of gasoline surpasses BRL 7 (USD 1.24) in some states.

Per official data, the fuel is up by 39 percent over the past 12 months, being a key factor for the overall inflation spike.

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