Brazil states announce fuel tax cuts amid price surge

At least 20 Brazilian states have announced a reduction in the tax imposed on fuels—an alternative introduced by the country’s federal government to mitigate the negative impact of high oil product prices on the production chain.

Referred to in the original Portuguese as ICMS ("Tax on the Circulation of Goods and Services"), the levy has its rate set by each of the 27 Brazilian states. Since fuels have just been considered essential under a new law, the proportion cannot go any further than 18 percent.

The first state to make the reduction was São Paulo, which brought the rate from 25 down to 18 percent. Minas Gerais, Goiás, Paraná, and Amapá have also announced similar moves.

On July 1, the Federal District published a decree limiting ICMS collection to 18 percent. The rates for gasoline and ethanol were set at 27 percent. Losses are estimated to total BRL 1.7 billion a year, the local government reported.

Appeal

Taking revenue losses into consideration, governors decided to appeal to the Supreme Court against the new piece of legislation. In the motion, they describe the law as unconstitutional, adding that fuels accounted for 86 percent of state revenues in 2021.

Hearings held by the top court to settle the matter between state and federal officials were unsuccessful by July 1, when Brazil’s Judiciary branch went into recess.