Call for Brazil to Reinstate Fuel Tax Policy

Joanna Schroeder

The Brazilian Industry Sugarcane Association (UNICA) is calling for the return of the ICMS tax policy that creates incentives to use ethanol over gasoline. When the tax policy is in place, funds generated from the fuel tax are used to subsidize public transportation. UNICA notes that the policy is a way to generate positive economic, social, environmental and public health benefits. The Association’s recommendation came on the heels of a study conducted by the Fundação Getúlio Vargas (FGV) on behalf of UNICA.

“We insisted that the recognition of so-called positive externalities of ethanol, through public policy and differentiated taxation, would be an important step towards returning to the competitiveness clean and renewable fuel to the base of cane sugar. The FGV study sugarcaneshows that it is possible to start down this path, with important benefits for society,” said Elizabeth Farina, the president of UNICA.

Until 2007, fossil fuels (gas) were taxed more heavily than renewable fuels (ethanol). Farina notes that reinstating this tax structure would also have significant environmental impacts, something that has not been considered as part of the benefits of the tax policy.

“We often hear very naturally that the calculation to be done in time to fuel the car is 70 percent, i.e. ethanol should not cost more than 70 percent of the price of gasoline. Except that this calculation does not take into account the severe environmental damage caused by the increase in the use of gasoline and reduction in the use of ethanol, especially in large cities,” said Farina.

A recent study released by the Health and Sustainability Institute points out that 4,655 people died due to poor air quality in the state capital in 2011 – a total more than three times the number of deaths in traffic accidents. Farina says that the damage goes beyond environmental issues. Currencies are wasted to import gasoline, as demand could be being fueled by ethanol, a industry employing more than a million Brazilians and benefits over a thousand municipalities throughout the country.

The FGV study, led by Samuel Pessoa, shows that additional taxation on gasoline can reduce inflation since the proceeds are used to subsidize public transport fares. If tribute was R $ 0.10 per liter of gasoline could reduce the value of the passage in 13.96 percent, causing a negative impact of 0.22 percent in the IPCA . If the tribute was R $ 0.50, the rate of public transport, according to the study, would fall by 68 percent and the final effect on inflation would be negative 1 percent.

Farina adds that the adoption of the study suggests that a combination would produce positive results for the vast majority of society. “In addition to generating a drop in the inflation rate and reduction of the cost of public transport without impacting the budget of the municipalities, the measure would raise the ICMS tax in all states and reduce costs for lower-income families who devote smaller portion of their income to get around. The ICMS would be an important contribution to the improvement in income distribution in the country.”

advanced biofuels, Brazil, Ethanol