Consequences of abolished fuel tax by President of Brazil
2023.01.03 14:31
Consequences of abolished fuel tax by President of Brazil
Budrigannews.com – Analysts said on Tuesday that the decree that keeps fuels exempt from federal taxes by Brazil’s new President Luiz Inacio Lula da Silva is likely to have a negative impact on Brazilian sugar and ethanol companies.
As Finance Minister Fernando Haddad indicated last week, the sugar and ethanol (S&E) industry and international sugar traders were widely anticipating the resumption of federal taxes on gasoline and ethanol.
However, the government’s Monday publication of a decree exempting fuels was one of its first actions.
Raw sugar futures in New York were down nearly 2% on Tuesday as a result.
In a note, broker Marex stated, “Politics has beaten economics.” Citi Research stated, “This measure may have negative effects on the S&E sector from our perspective because it maintains ethanol prices below the market’s forecast, whereas the expectation was for an increase in ethanol prices at the beginning of 2023.”
The return of federal taxes, also known as Pis-Cofins, was widely regarded as positive for ethanol, which could gain market share, and as a result, it was also positive for sugar prices, as mills would have an incentive to produce more biofuel and less sugar. This is due to the fact that federal taxes, also known as Pis-Cofins, are typically higher for gasoline.
Unica, a group that represents the sugar and ethanol industries, said that the new administration had become “an accomplice” to the attack on the environment that had started under the previous administration. They also said that the measure goes against Lula’s speech at the COP 27 U.N. climate meeting in November.
Since the law requires the federal government to provide a tax incentive for biofuels, the group claimed that the tax exemption was unconstitutional.
According to analyst Mauricio Muruci of Safras & Mercado, fuel distributors were actively purchasing ethanol toward the end of last year, prior to the anticipated tax return. The local market’s price of biofuel could be impacted by this purchase now.
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