Brazil cuts gasoline, hydrous ethanol taxes and introduces diesel subsidy

The Brazilian government announced Sept. 9 a new package of fuel-price relief measures, cutting federal taxes on gasoline and hydrous ethanol and introducing a temporary subsidy for road diesel as international oil prices remain high amid geopolitical supply disruptions.

A presidential decree will reduce PIS/Pasep and Cofins taxes on gasoline by 63 Brazilian centavos/liter and eliminate the contributions on hydrous ethanol between Sept. 10 and Oct. 5, according to a government statement.

For gasoline, the measure will reduce the combined federal tax burden to 16 centavos/liter. The new tax reduction replaces and expands a previous 44 centavos/liter gasoline subsidy established under Provisional Measure 1,358/2026, which expires Sept. 9.

For hydrous ethanol, which is used directly as a motor fuel in flex-fuel vehicles, the elimination of PIS/Pasep and Cofins represents a tax reduction of 19 centavos/liter.

The simultaneous changes are particularly relevant to the competitiveness between gasoline and hydrous ethanol at the pump. While gasoline receives the larger nominal tax reduction, hydrous ethanol will carry no PIS/Pasep or Cofins during the measure's validity.

"The impact of these measures, the renewal for gasoline with the expansion, plus the ethanol, is around 2 billion reais," stated Bruno Moretti, Minister of Planning and Budget, during a press conference held after the announcement of the Provisional Measure.

The government said the measures were adopted in response to persistent volatility in international oil markets and fuel supply constraints related to geopolitical conflicts. Brent crude has returned to around $100/b, according to the statement.

The measure also follows the approval of separate federal support for hydrous ethanol producers under Complementary Law 235/2026, which authorized up to 1.2 billion reais in economic subsidies for producers and cooperatives. The support has already been incorporated by market participants into discussions around domestic versus export economics.

Diesel subsidy set at 1 real/liter

Separately, the government signed a provisional measure authorizing an economic subsidy for producers and importers of road diesel.

The subsidy will initially be set at 1 real/liter, although the Finance Ministry will be able to adjust, suspend or extend the amount depending on market conditions. Participating suppliers will be required to deduct the subsidy from their selling price and record the discount on the invoice.

Brazil's National Agency of Petroleum, Natural Gas and Biofuels, or ANP, will be responsible for approving participants, monitoring prices and making subsidy payments.

The measure is intended to be temporary and adjustable, with both its duration and subsidy value subject to changes according to international market conditions and the availability of federal budget resources.

Moretti clarified that this new diesel subsidy will temporarily run alongside an existing one. "We are going to make it coexist with the current 1.12 real/liter because the provisional measure expires, if I'm not mistaken, on the 27th of this month," he said during the press conference. "Given the severity of the situation, not only in terms of price stability but also supply stability, we are going to issue a new provisional measure," Moretti estimated that the cost of this new 1 real/liter diesel subsidy should be around 5 billion reais this month.

"When we reach the end of this month, before the 27th, we will do a reassessment to see if we can remove the 1.12 real subsidy or if it will need to be preserved," he further explained. "If it needs to be preserved, in legal terms, we actually need to review the value. That is why it is important that this new provisional measure is flexible to absorb the new value, but there is no decision to extend this value. We will evaluate this at the end of the month. At the end of one month of this new provisional measure, which establishes the value of 1 real/liter in the act of the Finance Minister, we will also reassess this value. We will only maintain it if the parameters do not improve."

The government highlighted Brazil's exposure to international diesel markets as one reason for the measure, saying that more than 25% of diesel consumed in the country is imported. It also cited higher international refining costs as amplifying the effect of the external price shock on the domestic market.

"We import more or less a quarter of the diesel the country consumes, and we are in a particularly relevant harvest period," Moretti said. "The losses to the country would be much greater if we did not apply this new measure to guarantee a stable supply of diesel."

Rogério Ceron de Oliveira, Executive Secretary of the Finance Ministry, further detailed the global context driving the decision at the same event. "We have an overlap of two price crises: a price shock in the oil barrel and a crisis in refining," Ceron noted. "This requires a preventive response to guarantee supply here in the domestic market due to imports. This is a major element motivating this alteration in the subsidy."

Addressing questions during the press conference on whether the government had coordinated with state-led oil company Petrobras to adjust refinery prices alongside these measures, officials emphasized the company's autonomy. "Petrobras has its own governance and makes its own decisions on pricing," Moretti said. "[The government] always looks at the final consumer price to keep prices stable. There is no kind of agreement with Petrobras because the decision-making bodies are independent."