New Brazilian anhydrous ethanol taxation confuses sector

10 May 2013 18:28  [Source: ICIS news]

MEDELLIN, Colombia (ICIS)--The Brazilian ethanol stimulus package caused confusion in the market on Friday for the world’s biggest ethanol exporter, as double taxation could possibly be happening amid uncertainties of the new tax rules.

The confusion lies in that the official publication on 8 May of the Provisional Measure 613 and Decree 7.997/13, refers to the ethanols without distiguishing between hydrous and anhydrous, according to buyers and sellers in the region.

In the case of anhydrous ethanol, the Brazilian reais R72 ($35, €27) taxes due are collected at the time of the gasoline sale, sources said.

Brazil blends anhydrous ethanol into gasoline. The country uses hydrous ethanol as a stand-alone fuel in flexible-fuel vehicles (FFVs), competing directly with gasoline.

According to sources in the sector, on 9 May refiners did not change the price of gasoline. If this is correct, then there is double taxation happening, a source said.

There is the possibility that Petroleo Brasileiro (Petrobras) interpreted that the taxation changes would be effective starting from September, while most of the sugar and ethanol industry claims to have the option to migrate to the new taxation levels starting immediately, the source said.

The main objective of the stimulus package, which was unveiled in April, is to encourage producers to invest more in biofuel production by increasing the supply of the product to lower the price of fuel at the pumps.

The package included credit lines specifically set aside for the sector, interest rate reductions and a reduction of the tax burden on producers.

The plan comes as ethanol mills start processing a record sugar-cane crop and rising gasoline imports by state-run Petrobras, sources in the sector said.

Ethanol output in Brazil, where the fuel is made from sugar-cane, will rise to 25.8bn litres (6.8bn gallons) in the 2013/2014 crop year that started this month, from 23.6bn in the previous season, the government said on 9 April.

Brazil increased its ethanol blending rate to 25% from 20% on 1 May.

Brazil had lowered the blend rate to 20% in October 2011 because the country had insufficient supplies of anhydrous ethanol to meet demand.

($1 = €0.77; $1 = R2.03)

By: Leela Landress
+1 713 525 2653

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