Originally published in the June 15 edition of World Tax Daily (Copyrights Tax Analysts)
Brazil’s official gazette of June 9 published Decree 6,875/2009, which increases the fuel tax (CIDE-fuel) on diesel oil and gasoline used in vehicles.
The government increased the CIDE-fuel from BRL 30 to BRL 70 per cubic meter (BRL 0.07 per liter) for diesel oil and from BRL 180 to BRL 230 per cubic meter (BRL 0.23 per liter) of gasoline. After the CIDE-fuel increases, gasoline prices for consumers will remain the same, while the price of diesel oil will be reduced by 9.6 percent.
The increase was determined at the same time that Brazil’s state-owned oil company PETROBRAS announced price reductions for diesel oil and gasoline sold to fuel distributors.
In May 2008 the government reduced the CIDE-fuel to BRL 30 per cubic meter of diesel oil (BRL 0.03 per liter) and BRL 180 per cubic meter of gasoline (BRL 0.18 per liter) to avoid inflation resulting from increasing PETROBRAS fuel prices.
As fuel prices stabilized in international markets, PETROBRAS decided to lower diesel oil and gasoline prices. The price reduction for distributors reached 4.5 percent for gasoline and 15 percent for diesel oil, which could have a positive impact on consumer prices.
However, with recent tax cuts for durable goods such as vehicles, motorcycles, and home appliances, the government saw an opportunity to increase the CIDE-fuel without affecting inflation and to recover some tax revenues lost with recent tax cuts.
Sources from the Federal Revenue Department estimate that the CIDE-fuel increases could generate BRL 1.5 billion in tax revenues for the remainder of 2009 and 2.6 billion per year thereafter, which could help minimize the losses in tax revenues from recent tax cuts, estimated at BRL 11 billion in 2009 alone.
David Roberto R. Soares da Silva