Why gasoline in Brazil drops more than in other countries and who is paying the bill

Last week, Petrobras announced a further reduction in the price of gasoline sold to distributors. The value of a liter of fuel in refineries goes from R$ 3.53 to R$ 3.28 per liter, a reduction of 7.08%. The last change in the price of gasoline had been on August 16th.

Even before the announcement, a survey by the ANP (Agência Nacional do Petróleo) showed that the values ​​of gasoline, diesel and ethanol returned to decline at gas stations in the last week in most states.

According to the agency, the average sale price of a liter of gasoline at stations reached R$ 5.25 in the national average in the week of August 21 to 27.

In comparison with other countries, the price of gasoline in Brazil was one of the ones that fell the most in recent months, according to data from Global Petrol Prices, which surveys prices in 168 nations, most of them weekly.

The report compared the rankings prepared by the consultancy on June 27 and August 29 this year.

In this interval, Brazil rose 37 positions, from the 76th cheapest gasoline to the 39th, and was among the ten countries where the price of a liter of fuel dropped the most.

Among the countries where the value dropped more than in Brazil are Turkey, Panama, Vietnam, Australia, Honduras, Montenegro and Ghana.

But after all, why are prices dropping so much in Brazil and who pays the bill for the drop?

Why are prices falling?

Pedro Rodrigues, managing partner of the CBIE (Brazilian Center for Infrastructure), explains that the variables that most strongly influence the price of gasoline are the price of a barrel of oil on the international market and the exchange rate, since the commodity is quoted in dollars.

These are the main factors that currently affect the value in Brazil and that made Petrobras announce a new reduction.

“Right now, the price of oil and the exchange rate are giving way. And at Petrobras or any company that follows the international market, when the price of a barrel drops, so does the price of fuel”, he says.

Last Tuesday (30), oil prices fell by almost US$ 6 (R$ 31) per barrel, the sharpest decline in about a month.

In a note, Petrobras informed that the reduction in the price of gasoline at refineries follows this trend.

“This reduction follows the evolution of reference prices and is consistent with Petrobras’ pricing practice, which seeks to balance its prices with the market, but without passing on to domestic prices the conjunctural volatility of international quotations and the exchange rate. exchange”, said the state company.

But in addition to prices on the international market, there are other factors that can influence fuel prices, albeit in a more subtle way.

According to Rodrigues, it is worth mentioning the taxes —such as PIS/Cofins and ICM— and the percentage of blending of ethanol in gasoline.

It is precisely the tax policy of the Brazilian government, added to the appreciation of the real against the dollar, which is causing the price to fall more in Brazil than in other countries.

“In addition to having the drop in the global price of oil, Brazil applied a policy that further reduced the tax rate, also reducing the final price of fuel. That’s why, in percentage terms, the price here dropped more than in other countries.” countries”, explains the managing partner of the CBIE.

Global Petrol Prices itself explains that the differences between the values ​​of the liter of gasoline in the different nations in its ranking are due to various types of taxes and subsidies for the fuel.

What has changed in tax policy?

At the end of June, legislation came into force in Brazil that limits ICMS (Imposto sobre Circulação de Mercadorias e Produtos) rates that are levied on items considered essential — such as fuel, natural gas, electricity, communications and public transport.

Sanctioned by President Jair Bolsonaro (PL) after long discussions and a lengthy process in Congress, the proposal determines that states limit the collection of the tax, which is statewide, to the minimum rate of each state, which varies between 17% and 18%.

At the same time, the government also zeroed the rates of the Contribution to PIS/Pasep (Programs for Social Integration and Formation of Public Servant Assets) and Cofins (Contribution for the Financing of Social Security) —two federal taxes— for fuels.

In March, a decree and a provisional measure had already zeroed the same rates on the commercialization and import of diesel oil and cooking gas.

According to the analyst of the IFI (Independent Tax Institution), Alexandre Andrade, from the point of view of taxation, these were the events that most impacted the price of fuels when they came into force.

“All states charged ICMS rates above 17% or 18%. Some states, like Rio de Janeiro, charged up to more than 30%”, says the economist.

“The decree that zeroed PIS and Cofins rates also had an impact, but ICMS definitely weighed more on fuel prices.”

Where does the tax money come from?

Andrade explains that ICMS is the main tax that the states are responsible for, in addition to their biggest source of revenue.

“In particular, the items that were the object of the law that reduced the tax rate, that is, fuels, natural gas, electricity, communications and collective transport, are the main sectors of collection within the ICMS”, he says.

“This means that the reduction of the ICMS rate imposes a significant loss of revenue for the states.”

The ICMS collected, in turn, contributes to essential services financed by state governments, such as education, health, security and the cost of public machinery.

At the end of May, XP estimated a loss of around R$103 billion in revenue for state governments for six months of 2022. 22 billion.

By law, the federal government is required to compensate states when the loss of tax revenue exceeds the percentage of 5%, compared to the revenue recorded in the previous year.

Previously, the administration had understood that Congress had mandated that the comparison should be made on the basis of full-year revenues. As a result, compensation, if necessary, would only occur in 2023.

Recently, however, the Federal Supreme Court (STF) granted injunctions to seven states (São Paulo, Alagoas, Maranhão, Piauí, Minas Gerais, Rio Grande do Norte and Acre) for the immediate compensation of losses by the Union.

On the other hand, PIS, Pasep and Cofins are social contributions within the competence of the Union, which are intended to finance social security.

“PIS and Pasep finance, for example, the salary bonus policy and unemployment insurance. Cofins, on the other hand, is a contribution that serves to finance social security, that is, Social Security”, explains the IFI economist.

According to Alexandre Andrade, the federal government implemented these exemptions because the collection is growing at a strong pace, despite having already started a process of deceleration more recently.

“When the government gives up a collection, the Federal Revenue technically classifies it as tax expenditures. It is as if, when opening a collection, the government was carrying out a public policy”, he says.

“In the case of fuel, the government is granting a subsidy to those who consume gasoline, ethanol, diesel and cooking gas.”

But there are those who criticize the measure.

“The main criticism made by some is that the government is financing the consumption of fossil fuels, in a context where the whole world is discussing measures to reduce it”, says the IFI economist.

“And, in general, the government could be allocating this resource to other areas.”

An estimate from the IFI in March calculated a waiver of around R$17.6 billion in revenue with the suspension of PIS, Pasep and Cofins rates on diesel oil and cooking gas until the end of the year.

With the same rates that were levied on gasoline and ethanol in June zeroed out, the institution estimated a loss of around R$ 18 billion by December. Together, the two values ​​total R$ 35.6 billion.

But in its proposal for the 2023 budget, sent on Wednesday (31) to the National Congress, the government indicated its intention to extend the reduction of rates on gasoline, ethanol and CNG (natural gas for vehicles).

With this measure, the government itself estimated a loss of R$ 34.3 billion in revenue.

This text was originally published here.