Brazil: more populated states reduce ethanol taxes

On Monday, July 18, the governments of São Paulo and Minas Gerais, Brazil’s two most populous states, announced cuts to the ICMS tax (Brazilian VAT) on ethanol to make the biofuel more competitive at the pump, following a similar reduction in the gasoline tax.

São Paulo reduced the VAT-like ICMS tax on ethanol to 9.57% from 13.3%, while Minas Gerais reduced it to 9% from 16%.

The tax reduction measures come against double-digit inflation driven by high energy prices ahead of the October elections.

São Paulo Governor Rodrigo Garcia and Minas Gerais Governor Romeu Zema will run for re-election, as will President Jair Bolsonaro.

Garcia said he expects the measure to reduce ethanol prices in São Paulo by about R$0.17 (US$0.03) per liter.

Ethanol competes with gasoline at the pumps in Brazil, where most of the car fleet can run on ethanol due to flexible engines. Biofuel is also blended with gasoline in the South American country.

Both states had previously cut the ICMS tax on gasoline under a federal law that limits the amount states can tax energy and some services.

The fiscal impact of São Paulo’s latest measure was estimated at R$563 million at the end of this year. The state is Brazil’s largest fuel market.

With information from Ámbito

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