By Brazil Stock Guide – Brazil’s government moved on Thursday (Mar. 12) to contain a potential surge in diesel prices by eliminating two federal fuel taxes, a measure aimed at insulating the economy from rising global oil costs linked to geopolitical tensions.
President Luiz Inácio Lula da Silva signed a decree that temporarily sets to zero the PIS and Cofins taxes applied to the import and commercialization of diesel fuel. The move is part of a broader package designed to prevent international oil market turbulence from quickly feeding into domestic fuel prices.
Brazilian officials said the measure was adopted after crude oil prices rose sharply amid escalating conflict in the Middle East, increasing concerns about inflationary pressures in fuel-dependent sectors such as freight transport, agriculture and food distribution.
How the measure works
PIS and Cofins are federal taxes normally applied to fuels and other goods in Brazil. By suspending these levies on diesel, the government hopes to reduce the cost of imported fuel and soften the impact of global price increases on Brazilian consumers.
The policy also includes temporary subsidies for diesel producers and importers, which will be overseen by the country’s oil regulator, the Agência Nacional do Petróleo, Gás Natural e Biocombustíveis. According to the government, companies will only receive the subsidy if they pass the benefit through to final consumers.
Officials also announced stronger monitoring of fuel markets to discourage price speculation.
Pressure on states
Lula urged Brazil’s state governors to consider lowering ICMS, the state-level value-added tax applied to fuels. ICMS represents the largest share of taxation on diesel in Brazil and varies across states.
Federal taxes account for roughly 10.5% of the final diesel price, while state taxes represent an average 38.4%, according to estimates cited by the Confederação da Agricultura e Pecuária do Brasil.
“If possible, states should also reduce ICMS so that the increase in international oil prices does not reach Brazilian drivers and truckers,” Lula said.
Brazil’s diesel vulnerability
The move highlights a structural feature of Brazil’s energy market that is often overlooked abroad: the country is a major exporter of crude oil but still imports a large portion of the diesel it consumes.
Brazilian refineries do not produce enough diesel to meet domestic demand, forcing distributors to rely on international markets. As a result, global oil price swings can quickly affect fuel costs at home.
Officials from the Ministry of Energy said Brazil’s direct exposure to Middle East supply disruptions is limited, but the government is closely monitoring global fuel supply chains and logistics.
For now, the tax cut is intended as a temporary buffer. Whether it fully offsets rising oil prices will depend largely on how global energy markets evolve in the coming weeks.