In Brazil, overturning Comsefaz's decision on diesel tax does not ensure a drop in pump prices, analysts say

Oil and dollar prices are the most responsible for adjustments in the price of diesel

Bruno Rosa and Fernanda Trisotto

Specialists claim that the injunction that Brazil’s federal government obtained against Brazilian states in the country’s Federal Supreme Court (Supremo Tribunal Federal/STF), overturning a decision by the Committee of State Finance Secretaries (Comitê de Secretários de Fazenda dos Estado/Comsefaz) concerning the diesel tax (ICMS) policy does not ensure that there will be a drop in sales prices to the consumer.

“The fuel chain is very complex, and influenced by other market elements such as commercial and logistic agreements,” says Eduardo Natal, a specialist in Tax Law and partner at Natal & Manssur Advogados.

In the lawsuit, Brazil’s Attorney General's Office (Advocacia-Geral da União/AGU) requested suspension of the agreement signed by the states, within the scope of Comsefaz, concerning taxation of diesel. STF Minister André Mendonça accepted the request. The states established a single, fixed but high tax rate, allowing each local government to set its own “discount” on prices.

This was a way they found to ensure that taxes continued to be charged as before.

Natal considers that the provisions of the agreement circumvented the principles of complementary law 192/2022, which sought to create a single tax rate for diesel.

"The question is the constitutionality of the agreement's provisions concerning the possible continuation of unequal rates by states," he says.

Sergio Vale, chief economist at MB Associados, says that the fixed tax rate is only valid to anticipate discussions concerning tax simplification in a future reform, since there will be no effect on prices as long as two opposing forces – the price of a barrel of oil and the exchange rate – continue to push costs up.

“From an economic point of view, the effect on prices will be negligible. The government is just playing to the gallery when it says that diesel prices will drop, because it will not have any effect at all. Of course the government came up with this idea following a rise in diesel prices, after several weeks in which there had been no increase,” he argues.

To lawyer Eduardo Zangerolami – a partner in Barcellos Tucunduva Advogados’ tax area –, the lawsuit referring to the ICMS tax seeks to avoid a new increase rather than enable an immediate drop in prices.

“The fixed ICMS will apply, with no possible reduction. This will probably lead the committee to review the value of this fixed ICMS, which may be reduced (in relation to today's value),” he says.

Samir Nemer, a tax lawyer at Furtado Nemer Advogados, says the decision will have no practical effect on prices. He points out that recent increases are the result of the behavior of the dollar and oil, the two main variables in Petrobras' price policy:

“This is an attempt to interfere in the states and to violate the federative pact, dumping the problem in the governors' laps and getting rid of the demands that are being made by the population, specially drivers”.