Following the diesel example, Congress is working to extend the benefit to biofuels.

Brasilia - The provisional measure that the government sent to subsidize diesel (R$ 0.32 per liter) at the pump has barely reached the National Congress, and parliamentarians, especially from the rural caucus, have already launched a movement to extend the subsidy to biofuels (ethanol and biodiesel) as well.

Published by the government on March 12, the Provisional Measure already has 163 amendments submitted by deputies and senators. Most aim to give equitable treatment to biofuels, in the same way that the Executive proposed for diesel. But others also propose the recovery of PIS and Cofins credits to offset other taxes.

Two weeks ago, the government issued a decree eliminating PIS and Cofins taxes on diesel, which, according to calculations by the Ministry of Finance, would represent a reduction of R$ 0.32 in the final price of the fuel. It also published this Provisional Measure that has the same impact on the price of diesel.

Together, the benefits amount to R$ 0.64 per liter and a tax waiver of R$ 16.8 billion for public coffers, that is, what the Federal Revenue Service will fail to collect. However, the measures are of an emergency nature due to the war in the Middle East, which has been putting pressure on global oil prices, and are only valid until December 31st.

“What we want is tax equality,” Congressman Arnaldo Jardim (Cidadania-SP), one of the authors of amendments in this regard and a member of the FPA board, told NeoFeed . “And biofuels need to have this distinction.”

For now, Jardim says, the agricultural caucus is in a holding pattern, as it is still unknown whether the government will actually insist on approving the provisional measure, or if it intends to let it expire after four months – the period in which it has the force of law. This is because the effects of the government's tax package will also depend on the duration of the armed conflicts in Iran and its neighbors.

However, if the Executive branch puts pressure on the Legislative branch to extend the Provisional Measure's validity, there is even speculation that, as a last resort, a Direct Action of Unconstitutionality (Adin) before the Supreme Federal Court (STF) might be necessary, questioning the constitutionality of such a measure.

This is because there are two recent provisions in Brazilian legislation, within the scope of tax reform, that establish this so-called tax equality for biofuels. One of them is Constitutional Amendment 132 of 2023, which unified five taxes into a single Value Added Tax (VAT), which provides for a "favorable tax regime" for biofuels.

The other is a supplementary law, from last year, that regulated the reform and established rules for the rates of the new federal taxes and another for states and municipalities - the Contribution on Goods and Services (CBS) and the Tax on Goods and Services (IBS), respectively. It states that biofuels must have differentiated treatment compared to fossil fuels (gasoline and diesel).

“The new taxes [IBS and CBS], when implemented, must have a lower rate than fossil fuels; it doesn't need to be zero,” André Nassar, executive president of the Brazilian Association of Vegetable Oil Industries (Abiove), told NeoFeed . The organization represents the large multinational trading companies that process and export soybeans and their derivatives.

"If the government eliminated PIS/Cofins taxes on diesel, in theory it should also eliminate them for biodiesel. But today, with the Provisional Measure, the reality is that biodiesel is being taxed more than diesel."

Diesel in Brazil contains a mixture with biodiesel. Therefore, the industry's argument is that if diesel received a tax benefit to reduce its price at the pump, but biodiesel did not, then this fuel is disadvantaged.

To obtain the same tax benefit that the government granted to diesel in the Provisional Measure, one of the amendments submitted in recent days, authored by the president of the Parliamentary Agricultural Front (FPA), Pedro Lupion (PP-PR), proposes a subsidy of the same value of R$ 0.64 per liter only for biodiesel. The objective: to avoid "competitive distortion," as he argues in his amendment.

Another amendment, from Congressman Alceu Moreira (MDB-RS), also from the agribusiness caucus, suggests a "tax credit" of R$ 2.5 billion to biodiesel producers until the last day of this year to restore the "competitive advantage" in relation to fossil fuels.

However, for the amendments to take effect, they would have to be accepted in the provisional measure by the joint committee, which has not yet been established and does not have a rapporteur. Following that, the provisional measure would also need to be approved by the plenary sessions of the Chamber of Deputies and the Senate by July, when it expires.

However, these measures to include ethanol and biodiesel in tax benefits would also require the Ministry of Finance to eventually agree to some type of tax waiver involved in this case.

Biodiesel on the agenda

As NeoFeed has shown, the biodiesel sector has been demanding an increase in the percentage of the blend with diesel as an option to mitigate the potential shortage of imported diesel in Brazil, due to high prices in the global market caused by the trade war.

The government, however, has signaled to the private sector that it intends to first try to normalize the diesel import market, which has already been registering a drop in the volumes entering Brazil. There are regions where the fuel is already scarce, such as in locations in the South. The country currently imports around 22% of the diesel it consumes.

In this regard, the new Finance Minister, Dario Durigan, even revealed last Tuesday, March 24th, that the ministry is studying a subsidy for imported diesel, which would be funded half by the federal government and half by the states.

If this solution proves ineffective, the biodiesel industry has already informed the government in meetings in Brasília that it can guarantee sufficient production to increase the share of biodiesel in the diesel blend to 16% or 17%.

According to the 2024 Future Fuel Law, this would require technical feasibility tests that could take up to six months at best – initially, the Ministry of Mines and Energy indicated that available laboratories would deliver the tests in one year. However, the minister of the department, Alexandre Silveira, has been holding meetings with parliamentarians and representatives of the biodiesel industry to try to circumvent the issue, NeoFeed has learned.

Still, the National Energy Policy Council (CNPE) would also need to approve this potential increase after the tests. However, a source following the discussions in Brasília with the government says that if the flow of diesel imports does not improve within 15 days, there could be a shortage of the fuel in the Brazilian market.