BRASILIA (Reuters) – Brazilian President Jair Bolsonaro said on Tuesday that a proposed amendment to the Constitution being drafted by the government along with Congress will allow the reduction of federal and state taxes on fuel, electricity and cooking gas.
With the measure, which comes in a presidential election year, the president aims to reduce the price of basic items that have weighed heavily on Brazilian consumers and pushed inflation up to 10.06% at the end of 2021, its highest annual rate since 2015.
In a tweet, Bolsonaro said the constitutional amendment will allow both the president and governors to reduce or eliminate taxes on diesel, gasoline and ethanol, as well as electricity tariffs and cooking gas.
Bolsonaro has long blamed governors for high fuel prices due to local taxes. Last week, he indicated the proposed amendment would be presented at the return of the parliamentary recess, scheduled for next week.
The central bank has been conducting an aggressive cycle of monetary tightening to tame inflationary pressures in Brazil, a move that is expected to affect consumption and investments, cooling an economy that had already posted two quarterly contractions.
The government can not give up tax revenues without indicating sources of compensation, which is why an amendment to the Constitution is necessary for this change to take place.
According to the revenue service, federal taxes Pis and Cofins on fuels totaled 22.8 billion reais ($4.15 billion) from January to November, up 71.7% from the year-earlier period.
In a note to clients, UBS said on Monday that the constitutional amendment signals no direct intervention in state-run oil giant Petrobras’ policy, which is considered positive.
On the other hand, the bank said that the revenue loss would “pressure the country’s fiscal situation, and could lead to a deterioration of the foreign exchange and subsequent need for fuel prices to rise.”
($1 = 5.4892 reais)
(Reporting by Ricardo Brito and Marcela Ayres; Editing by Alexandra Hudson)
