Changes to fuel tax bill will delay approval in Congress

Senator Fernando Bezerra is the fuel tax bill's rapporteur in the upper house. Photo: Roque de Sá/SF

Senator Fernando Bezerra Coelho presented his report this afternoon on a heavily discussed (and controversial) fuel tax relief bill.

His draft changes the proposal approved by the House on May 25, meaning that before it can become law, the bill will have to go back to the lower house for another round of approval. The government is treating the proposal as an emergency measure to tame rising fuel prices.

The bill caps state-level taxes on fuels at 17 percent (the rate sits at 25 percent in most states). While the original bill already included compensation from the federal government to local administrations, Mr. Bezerra included additional redress to offset the ensuing budgetary shock.

Taxes on goods and services (ICMS) are the main source of revenue for state governments, accounting for 80 percent of their tax collection this year, per the National Council of Finance Policy.

For that reason, the bill faces some resistance in the Senate — where governors hold a lot of influence.

Forcing taxes down and compensating states in return could cost up to BRL 50 billion (USD 10.3 billion) to the public purse, but the government is already cash-strapped. The move has clear electoral undertones, as President Jair Bolsonaro sees skyrocketing fuel prices as a major obstacle to his re-election plans.

But the fiscal risks it raises have sparked a selloff of Brazilian assets — which has weakened the currency. And since Petrobras, Brazil’s oil and gas major, pegs its prices to international fares, a stronger dollar could push fuel prices up, potentially nullifying the intended benefits from the budgetary move.

Senators have until Monday to introduce amendments to Mr. Bezerra’s report, which could be voted on next week.