Government asks Congress for permission to cut fuel taxes without compensation

The government sent this Wednesday (16) a bill to Congress asking for permission for fuel tax cuts to waive budgetary compensation.

The LDO (Budget Guidelines Law) requires compensation for measures not provided for in the Budget that cut revenues or increase expenses and may affect the fiscal target.

The government bill intends to amend the LDO and add exceptions to the rule. If the proposal is approved, it will not be subject to the requirement of “reduction of taxes levied on operations involving biodiesel, diesel oil, aviation kerosene and liquefied petroleum gas, petroleum derivatives and natural gas”.

The waiver is already provided for in the law sanctioned by Bolsonaro that cut federal taxes on these same items and limited the collection of ICMS (Imposto sobre a Circulação de Mercadorias e Serviços), but there is still legal uncertainty in the government about the instrument.

The question is whether the sanctioned law, as it is complementary, can overlap with what is established in the LDO. Therefore, according to members of the Ministry of Economy heard by the sheetthe waiver of the requirement directly in the LDO will bring more security to the tax cut.

Bolsonaro fully sanctioned, about a week ago, the bill that changes the collection of ICMS (Tax on the Circulation of Goods and Services) on fuels and zeroes the PIS/Cofins rates on diesel and gas by the end of 2022.

The text had been approved by Congress after Petrobras announced a mega-increase in gasoline and diesel prices. The state-owned company had to readjust values, after the war in Ukraine put pressure on the dollar and the international price of oil.

According to Minister Paulo Guedes (Economy), the government-sanctioned PIS/Cofins cut on diesel generates an impact of over R$15 billion. State revenues are also likely to be affected by the new limitations on ICMS.

In addition to supporting the measure already sanctioned, members of the Economy say that the exemption provided for in the LDO will be valid for any further discussions to be made about cuts in fuel taxes this year.

The government continues to discuss the possibility of measures aimed at fuel prices and members of the political wing defend, for example, initiatives aimed at gasoline.

Guedes has resisted the new onslaughts, although he took a step back last week by admitting that a diesel subsidy program could be adopted if the war in Ukraine continues.

“We will move according to the situation,” he said. “If that [guerra] resolved in 30 or 60 days, the crisis would be more or less addressed. Now, is this going to rush and turn into an escalation? Then you start thinking about subsidy for diesel”, said the minister last week.

The project is sent while the economic team continues to be under pressure from the political wing of the Jair Bolsonaro government (PL) for measures that could ease prices. The objective is to contain any damage to the election campaign of the president and allies this year.

Another point of the bill is the maintenance of the electoral fund at R$ 4.9 billion, after the amount was reduced during budget discussions between the government and Congress.

The amount was set at BRL 5.7 billion in the LDO (Budget Guidelines Law), but later increased to BRL 4.9 billion in the 2022 Budget. According to government officials, there was an agreement with the political class to maintain the predicted value.

The project also creates regulations for the execution of precatories (amounts owed by the Union after a court order), whose rules underwent changes through amendments to the Constitution last year. According to the government, the intention is to regulate the changes.

The changes were approved after a proposal presented by the government, which justified the need for the measure, citing the significant growth in precatories in 2022 (from 61% to R$89 billion).

Congress, after discussions, approved the flexibility requested by the government in two amendments. In one of them, the spending ceiling correction rule was changed (causing its expansion); in another, it created an annual limit for the payment of precatories within the ceiling.