Senate approves PEC that guarantees advantages for biofuels

The Senate approved this Tuesday (14), in the first round, the PEC (Proposed Amendment to the Constitution) that seeks to maintain a favored regime for biofuels – which could lose competitiveness after measures to reduce taxes on fossil fuels. .

The proposal passed with 68 and none against — 49 votes were needed. It needs to go through a new round of voting in the Senate, before moving on to the Chamber of Deputies.

The vote comes one day after the Senate approved a complementary bill that limits the ICMS tax on fuel, energy, telecommunications and transport at 17% and 18%.

The two proposals and another PEC, which releases up to R$29.6 billion for states that zero their fuel tax rates, form a government-sponsored package that seeks to reduce fuel prices.

The rise in prices has been the target of wear and tear for President Jair Bolsonaro (PL), who seeks re-election in the October elections.

The PEC on Biofuels adds an item to the article of the Constitution that deals with the right of all Brazilians to an ecologically balanced environment, to seek to guarantee an advantageous tax situation for non-polluting fuels.

The text does not exactly establish the tax rates that must be levied on biofuels. These percentages must be established by means of a supplementary law.

The PEC only determines that a “favored tax regime for biofuels intended for final consumption” must be maintained in the form of the complementary law. This will be done by ensuring a lower taxation than the one levied on fossil fuels, which would be able to guarantee a competitive differential.

As long as the complementary law is not approved by the National Congress, this competitive differential for biofuels in relation to fossil fuels will be guaranteed by maintaining the difference in rates applied to both types of fuel at the level in force on May 15 this year. In the first 20 years after the enactment of the PEC, the text provides that any complementary law will not be able to establish a competitive differential at a level that is lower than the one in force on that date.

The text also determines that changes in the rates applied to a fossil fuel, whether by legislative proposal or by court decision, will automatically imply the change of rates applicable to biofuels that are substitutes for it, in order to, at least, maintain the difference in rates previously existing.

The proposal refers in particular to taxes such as PIS/Pasep and ICMS (Tax on Circulation of Goods and Services).

The rapporteur of the proposal, Fábio Garcia (União Brasil-MT), recalled during the reading of his report that the coming months will be marked by tax reduction for fossil fuels. Therefore, it is necessary to guarantee the competitiveness of biofuels.

“This became even more emerging, more urgent after yesterday’s approval, because yesterday, correctly, we reduced or limited ICMS on all fuels, fossil and renewable, to the general rates of each state, 17 or 18%, depending on each state,” he said.

“So what we actually did was, in some states, or in many states, or in most states, we reduced the tax burden differential between renewable fuels – in this case, ethanol – and When we make this move correctly, to reduce taxes, we actually reduce the competitiveness of ethanol, for example, or other biofuels”, he added.

Some senators who had voted against the approval of the limitation of taxes on fuels the day before were in favor of the PEC on Biofuels.

“It is meritorious [o relatório da PEC dos Combustíveis] and in the sense that non-polluting, non-fossil green fuels continue to be competitive, because if we leave it as it was approved yesterday [limitação do ICMS]evidently that this would have negative consequences for this segment so important for the Brazilian economy and so important for the environment, which we need to defend and preserve”, said Senator Marcelo Castro (MDB-PI).

The Biofuels PEC was presented by former government leader Fernando Bezerra Coelho (MDB-PE). The senator is a representative of the state of Pernambuco, where there is a sugar and alcohol hub.

Bezerra even included in the proposal approved the day before, as rapporteur, the extension until 2027 of the zero rate of federal taxes on hydrated alcohol fuel and on anhydrous alcohol added to gasoline. However, it retreated after government resistance. “Here we are dealing with the interests of Brazil, the interests of millions of jobs, of an industry that is important for many Brazilian states, especially for my state, for Pernambuco. The sugar and ethanol industry in Pernambuco will not survive if it is not certain that will maintain competitiveness in relation to fossil fuels”, said Bezerra.

The government leadership initially sought to postpone the vote, stating that some points in the PEC still needed adjustments. The leader Carlos Portinho (PL-RJ) defended that the maintenance of biodiesel in the text of the proposal could inhibit all the reductions that are being promoted for the tax reduction of diesel.

The Biofuels PEC is the second proposal approved by the Senate, in the package to try to reduce fuel prices. The rapporteur of the proposal that limited the ICMS estimates that the approval of the three proposals that deal with fuels may cause a drop in the price of a liter of gasoline of R$ 1.65 and of R$ 0.76 in a liter of diesel.

On Monday night (13), the Senate approved the proposal that limits ICMS on fuel, energy, telecommunications and transport.

The so-called PLP 18 considers fuel, energy, telecommunications and transport as essential items and, thus, establishes that ICMS rates on these items cannot exceed 17% or 18%.

The proposal hits the states hard. Some of them, like Rio de Janeiro, have a 34% rate for these goods and services and will be forced to reduce it by half.

Next week, the Senate should also vote on the PEC presented by government leader Carlos Portinho, which provides for transfers of up to R$26.9 billion to states that choose to reduce their fuel rates to zero.