Brazil Scraps Plan to Extend Federal Tax Cuts on Fuel

(Bloomberg) — Brazil’s outgoing administration of Jair Bolsonaro gave up on plans to extend federal tax cuts on fuel at the request of the incoming government, said Fernando Haddad, picked by Luiz Inácio Lula da Silva to be his finance minister.

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The cuts, aimed at softening the impact of high oil prices on consumers, expire Dec. 31, but the current government intended to extend them by a month.

The so-called PIS/Cofins federal tax was scrapped for diesel, cooking gas, gasoline, ethanol and vehicular natural gas. The decision means that fuel prices could go up at the beginning of the year, adding to inflation that’s currently running at 5.9% a year.

Haddad told reporters Tuesday night that he asked Economy Minister Paulo Guedes in a phone call not to extend exemptions after discussing the matter with President-elect Lula.

“Measures that can be taken in January need not be taken hastily now,” said Haddad, adding that early January they will announce their plan to “cover the open gap in public accounts.”

Brazil’s 2023 federal budget takes into account the maintenance of the incentive for the whole of next year at a cost of almost 53 billion reais ($10 billion). With the decision not to renew the benefit, this amount will be an extra resource in the Lula government’s coffers.

In an interview in late November, Vice President-elect Geraldo Alckmin said tax exemptions would be reviewed.

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