Fuel prices are not unique to Brazil, emphasizes the IBP

Paulo Nogueira
per
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30-04-2022 11:56:39
in Oil, Oil and Gas
Fuel Price Fuel prices depend on market fluctuations, says Petrobras. 




In Brazil, in particular, the volatility and increase in international prices are still amplified by the exchange rate and 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 cyclical imbalance between supply and demand for energy caused by the economic recovery after a period of low activity imposed by COVID-19 and the conflict in Ukraine. In Brazil, in particular, the volatility and increase in international prices are still amplified by the exchange rate and complex tax logic. 

At this moment, several governments around the globe have acted 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 the their industries. 

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In Brazil, as a way of mitigating the problems, several alternatives have been evaluated and the sanction of Law 192/2022 goes precisely in this direction, by defining the fuels on which the ICMS will be levied once, with a single rate at the national level, establishing a uniform tax burden in all states and the Federal District. 

Taxes represent an important part of fuel prices. In the case of gasoline, for example, PIS/COFINS/CIDE taxes correspond to around 10%. The portion referring to state taxes (ICMS) corresponds to about 24%, on the national average, but reaching 34% in some states. The tax complexity related to the portion 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 that States advance in the regulation of tax simplification with the introduction of monophasia and uniform rates per 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 aimed at strengthening the national economy, which tend to appreciate the national currency and increase the purchasing power of Brazilians. At the same time, the simplification of rules, the reduction of inefficiencies associated with tax complexity, the exemption of the final consumer, the reduction of the possibilities of evasion and fraud and, above all, the increase of transparency to the final consumer, especially with regard to to the tax burden borne by it. 

Furthermore, it is important to consider that the product that reaches the final consumer is not composed only of fossil fuels (these represent around 40% of the final price of gasoline). The share of biofuels that have a mandatory minimum blend also has their prices influenced by the dynamics of the international market and the exchange rate, as they are products derived from commodities agricultural. 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 prices of gasoline to consumers in March 2022 in Brazil and in the United States with their main installments, highlighting the difference in the tax burden. 

Consumer Price Comparison Chart in Brazil vs. USA - Courtesy IBP
Consumer Price Comparison Chart in Brazil vs. USA – Courtesy IBP

In the Brazilian case, it should also be noted that around 80% of the fleet is flex-fuel, so that consumers can choose between C gasoline (with the addition of anhydrous ethanol) and hydrous ethanol. In this way, an eventual intervention in prices, without the proper compensation mechanisms, impacts both the oil industry and agribusiness. Regarding petroleum products, it should be remembered that the market has the participation of different agents, including refining companies, formulators and importers. In this sense, controlling the price of just one agent in this chain would create serious distortions in the entire market. 

In a context of higher prices, it is essential to highlight that the Brazilian state's revenue from the industry has broken successive records. In 2021, the collection of the states with ICMS on oil, fuels and lubricants was R$ 109.5 billion, a value 36% higher than the R$ 80.4 billion collected in 2020. In 2021, according to the ANP balance sheet, they were distributed to the whole R$ 74.4 billion with royalties and special participation, 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. At the same time, priority should be given to mitigating the complexity of elements that may hamper transparency to the final consumer and an understanding of the amount paid at fuel pumps, especially with regard to the tax burden borne by consumers. 

SOURCE: FSB Communication

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Paulo Nogueira
With technical training, I worked in the offshore oil and gas market for a few years. Today, my team and I are dedicated to bringing information from the Brazilian energy sector and the world, always with credible and up-to-date sources.