Brazilian Congress lowers fuel taxes to mitigate price hike

RIO DE JANEIRO, BRAZIL – Brazil’s Congress approved a fuel tax cut just hours after state-owned oil company Petrobras caused a stir by raising diesel and gasoline prices by up to 25%.

Lawmakers approved a bill Thursday night that would cut federal taxes on diesel and cooking gas by the end of the year and change how a local fuel tax is collected. The proposal now goes to President Jair Bolsonaro to become law.

The new law is intended to mitigate fuel price increases in the run-up to October’s general election. The West’s unprecedented sanctions on Russia have rattled the global oil market, putting additional pressure on Petrobras to adjust to the domestic market to avoid losses.

The company last raised prices in January, and the lack of adjustments has rattled the company’s board, according to two people directly familiar with the matter.

Earlier on Thursday, Petrobras announced a 25% increase in the price of diesel it sells to distributors to 4.51 reais per liter (US$0.89) and a 19% increase in the price of gasoline to 3.86 reais per liter (US$0.77).

The move was criticized by politicians, including the powerful speaker of the lower house, Arthur Lira, who said the increase was a “slap in the face” of Brazilians.

Economy Minister Paulo Guedes said the bill would help cushion two-thirds of Petrobras’ price increase. Guedes told reporters in Brasilia that the government is monitoring international markets and will take additional measures if necessary.

Petrobras has been at the center of political debate in Brazil as more expensive fuel pushes inflation above 10%, affecting influential groups such as transportation companies.

In the election, Bolsonaro and his main rival, former President Luiz Inácio Lula da Silva, have criticized Petrobras for passing on higher international oil prices to Brazilian consumers.

Congress will now debate a second bill proposing the creation of a fund to smooth prices and provide gasoline subsidies to low-income families.