The Brazilian government remains in talks with the sugar and ethanol industries over the reinstatement of taxes on hydrous ethanol, but little change is expected before the taxes go into effect at the beginning of 2017, sources said Tuesday.
The government has still not confirmed if an additional Real 0.12/liter tax on hydrous ethanol, to be charged at mills, will be reinstated as planned on January 1.
Most of mills are already including additional costs from taxes on the pricing of hydrous ethanol that is negotiated from January 1.
"Real 120.00/cu m will be presumed added to mills' account. It will be necessary to charge that additional cost on buyers-distributors," an ethanol broker said.
An Agriculture Ministry source said that a new meeting between the sugar and ethanol sector and the minister was scheduled for Wednesday or Thursday in the Federal District, Brasilia.
"The deadline is too short to change the initial plan to reinstate tax on hydrous ethanol from January 1, 2017. It would be necessary to establish a provisional measure," the source said.
In October, industry group UNICA proposed three possibilities to keep hydrous ethanol competitive against gasoline: Not reinstating the PIS and COFINS taxes, which would be unlikely to increase Brazil's inflation rate; increasing the CIDE tax on gasoline to Real 0.17/liter to balance the additional Real 0.12/liter of PIS and COFINS taxes on hydrous ethanol, which would be expected to increase tax revenues and increase inflation; and impose lower PIS and COFINS tax rates on ethanol and higher rates on gasoline, which would maintain tax revenues forecast for 2017, but which would likely add to inflation.
The sugar and ethanol sector is still trying to push the Brazilian government for an official statement before January 1.
"There will be a meeting today, December 20, in the afternoon in Brasilia, but we are not expecting any news to come. Next week -- Tuesday or Wednesday -- there will be a more conclusive meeting with the treasury minister," said Andre Rocha, president of the sugar and ethanol national forum.
The national forum is made up of 12 regional associations, including UNICA.
"It will be hard to keep the current zero tax on hydrous ethanol or to postpone the tax reinstatement, but we have many arguments to be discussed," Rocha said.
In the current Brazilian financial and fiscal environment, it is unlikely the government will lower tax collection or increase taxes on gasoline, which would directly impact the inflation rate.
Despite the expected additional tax, mills are not in a rush to increase sales before January 1.
According to market participants, total hydrous stock levels expected in the first quarter of 2017 would be enough to meet demand at levels almost 19% below the 1 billion liters held at the end of November.
