Bolsonaro Holds Brazilian States Accountable for Rise in Fuel Prices

RIO DE JANEIRO, BRAZIL – Brazilian President Jair Bolsonaro holds Brazilian states accountable for the price that reaches consumers at service stations and wants to change the rules for ICMS (Value Added Tax) charged by states on the sale of fuel.

President Jair Bolsonaro reacted on Wednesday, February 5th, to criticism from governors about the government’s intention to change the method of charging ICMS on gasoline and diesel, and once again held the states accountable for the rise in fuel prices. Defiantly, he said he could “zero” federal taxes on fuel if the governors also agreed to end the state tax.

“I will zero the federal (taxes) if they zero the ICMS. The challenge is made here. I will zero the federal (taxes) today and they (governors) will zero the ICMS. If they agree, I will accept it. Okay?” said Bolsonaro, without explaining how he would offset the loss of revenue that the measure would entail.

The federal government collected R$27.4 billion (US$6.9 billion) in 2019 from PIS/COFINS (Program of Social Integration/Contribution for the Financing of Social Security) and CIDE (Contribution of Intervention in the Economic Domain) taxes on fuels.

In a joint statement released on Monday, February 3rd, 23 governors had reacted to Bolsonaro’s proposal to submit a bill to Congress proposing the incidence of a fixed amount of ICMS per liter sold, rather than over the average price charged at service stations.

The initiative led to great discomfort among the governors since the ICMS is a tax levied by the states. Governors believe that the president has adopted a populist stance in trying to shift the responsibility for high prices to the states in order to undermine them in the upcoming elections. They argue that Bolsonaro should work to reduce federal fuel taxes.

In addressing the issue on Wednesday, during an interview outside the Alvorada Palace, the president once again complained that the reduction in fuel prices at the refineries is not reflected in the amount charged at the service stations to the end consumer.

“At least the population has begun to see whose responsibility it is. I’m not fighting with the governors, I want the ICMS to be charged on fuel at the refinery, not at the filling stations,” said Bolsonaro. “I’ve lowered the fuel prices three times over the last few days and nothing has gone down at the filling stations.”

Asked about the governors’ opposition to the proposal, Bolsonaro reacted: “It’s logical that governors are against (changing the ICMS rule), collection, right?”

The president has been advocating a change in the ICMS tax on fuel. According to him, the tax is to blame for the high prices charged to consumers at service stations and should be collected at the refineries, rather than at the time of sale, as is currently the case. According to Bolsonaro, under the current system, stations increase the final price to offset the tax charge.

Impact on the federal government would be R$27 billion

Zeroing taxes on fuel would have cost the federal government R$27.4 billion in 2019. According to the Federal Treasury, the biggest federal tax on fuels is Cofins, whose collection last year reached R$20.2 billion, followed by PIS, with R$4.3 billion, and Cide, with R$2.9 billion.

When Paulo Guedes left the Ministry of Economy for a meeting with Bolsonaro on Wednesday morning, he did not answer questions from the press regarding the potential zeroing of taxes on fuel. Earlier, when arriving at the office building, the special secretary of Finance, Waldery Rodrigues, also failed to comment on the challenge proposed by President Bolsonaro.

Since the truckers’ crisis in May 2018, under President Temer’s administration, the government has reduced the PIS/COFINS and the CIDE tax rates on diesel. Last year, these two reductions cost the federal government R$7.8 billion and R$2.8 billion in revenue.

Learn more about how fuel prices are compounded for the consumer:

Gasoline
Distribution and resale: 12 percent
Cost of anhydrous ethanol*: 14 percent
ICMS (state tax): 29 percent
CIDE, PIS/PASEP and COFINS (federal taxes): 15 percent
Petrobras’ share: 30 percent.
*Composition: 73 percent gasoline and 27 percent anhydrous ethanol in regular and additive gasoline – 25 percent in premium gasoline

Diesel
Distribution and resale: 15 percent.
Cost of biodiesel*: 9 percent.
ICMS (state tax): 15 percent
CIDE, PIS/PASEP and COFINS (federal taxes): 9 percent
Petrobras’ share: 52 percent
*Composition: 89 percent diesel and 11 percent biodiesel

The calculations were based on Petrobras’ average prices and on average prices to the final consumer in 13 capitals and metropolitan regions between January 19th and 25th 2020. The data source is Petrobrás, with figures from ANP and CEPEA/USP.

Source: O Estado de S. Paulo