Fuel tax bill not enough to lower prices, says São Paulo’s finance secretary

Felipe Salto, São Paulo's Finance secretary. Photo: Govesp

São Paulo Finance Secretary Felipe Salto told The Brazilian Report that the fuel tax relief bill due to be voted in the Senate on Monday will not necessarily make fuel prices go down, but that pressure from state governments had at least ensured a better compensation mechanism.

“The rise [in fuel prices at the pump] is due to the climb of international oil prices,” says Mr. Salto, and not, as the federal government claims, to the state-levied goods and services tax (ICMS), which has generally remained at the same rate. The bill to be voted today would cap the ICMS tax on fuels at 17 percent (the rate sits at 25 percent in most states).

The proposal has clear electoral undertones, as President Jair Bolsonaro sees skyrocketing fuel prices as a major obstacle to his re-election plans.

São Paulo state Governor Rodrigo Garcia suggested last week that state governments suspend their monthly debt payments to the federal government, rather than being compensated in cash at a later date for loss in revenue from the ICMS cap. According to Mr. Salto, the objective was to avoid “a new Kandir Act”.

The Kandir Act, implemented in 1996, exempted exports from the ICMS, representing a loss in revenue for state governments of several billion reais. President Bolsonaro signed into law compensation mechanisms for these losses in early 2021, 25 years after the Kandir Act came into force.

Governor Garcia’s suggestion was incorporated into the bill by Senator Fernando Bezerra Coelho, the bill’s rapporteur. If approved in the Senate today, the text will return to the House.

Senate President Rodrigo Pacheco reaffirmed this afternoon that he intends to put the bill to a vote today. The vote is delayed because senators are discussing the disappearance of British journalist Dom Phillips and indigenous expert Bruno Araújo Pereira.