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In Brazil, In Particular, Volatility and the Increase in International Prices Are Still Amplified by the Exchange Rate and the Complex Tax Logic
Fuel prices and energy costs in general, in any country, permeate all economic activity and impact all of society. Currently, the world is experiencing a conjunctural imbalance between supply and demand for energy caused by the economic recovery following a period of low activity imposed by COVID-19 and the conflict in Ukraine. In Brazil, in particular, volatility and the increase in international prices are still amplified by the exchange rate and the complex tax logic.
At this moment, various governments around the globe have been working to mitigate the impacts on the population by creating safety nets to prevent social tragedies such as the deprivation of residential heating, among others, while preserving the structural economic logic and the proper functioning of their industries.
In Brazil, as a way to mitigate the problems, several alternatives are being evaluated, and the sanctioning of Law 192/2022 goes precisely in this direction, by defining the fuels on which ICMS will be levied only once, with a uniform national rate, establishing a uniform tax burden across all States and the Federal District.
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Taxes represent an important share of fuel prices. In the case of gasoline, for example, PIS/COFINS/CIDE taxes correspond to about 10%. Meanwhile, the share related to state taxes (ICMS) accounts for about 24% on average nationally, reaching 34% in some States. The tax complexity regarding the share of the state tax (ICMS) makes it difficult for society to perceive its real impact on fuel prices. For this reason, as provided for in Law 192/2022, it is important for States to advance in regulating tax simplification by introducing monofasia and uniform rates by product throughout the country, giving greater transparency to society.
Thus, the challenge faced in the fuel market must be addressed from a structural point of view through measures that aim to strengthen the national economy, which tend to appreciate the national currency and increase the purchasing power of Brazilians. Meanwhile, simplifying rules, reducing inefficiencies associated with tax complexity, relieving the final consumer, reducing opportunities for evasion and fraud, and especially increasing transparency for the final consumer, particularly regarding the tax burden borne by them, take on great importance.
Moreover, it is important to consider that the product that reaches the final consumer is not made up solely of fossil fuels (which account for about 40% of the final price of gasoline). The share of biofuels that have a mandatory minimum blend also has its prices influenced by the dynamics of the international market and the exchange rate, as they are products derived from agricultural commodities. In the case of gasoline, about 14% of the final price paid by consumers is due to biofuel. The figure below shows a comparison of the average gasoline prices to consumers in March 2022 in Brazil and the United States along with their main components, highlighting the difference in tax burden.
In the Brazilian case, it should also be noted that about 80% of the fleet is flex, so the consumer can choose between gasoline C (with the addition of anhydrous ethanol) and hydrated ethanol. Thus, any intervention in prices, without proper compensation mechanisms, impacts both the oil industry and agribusiness. Regarding oil products, it should be remembered that the market involves different agents, including refining, formulation, and importing companies. In this sense, controlling the price of only one agent in this chain would create severe distortions throughout the market.
In a context of higher prices, it is essential to highlight that Brazilian state revenues from the industry have been setting successive records. In 2021, state revenue from ICMS on oil, fuels, and lubricants totaled R$ 109.5 billion, a value 36% higher than the R$ 80.4 billion collected in 2020. In 2021, according to ANP’s annual report, a total of R$ 74.4 billion was distributed in royalties and special participation, which is 65% higher than the amount distributed in 2020.
Thus, the challenge faced in the fuel market must be addressed from a structural point of view through measures aimed at strengthening the national economy. Meanwhile, priority should be given to mitigating the complexity of elements that may hinder transparency for the final consumer and understanding regarding the value paid at fuel pumps, especially concerning the tax burden borne by consumers.
SOURCE: FSB Comunicação
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