New Brazil law reinstates biofuels' tax advantage over fossil fuels (updated)

Adecoagro

14/07/2022 18:55

(Adds comment from federation of fuel distributors)
    By Rafaella Barros and Marcelo Teixeira
    SAO PAULO, July 14 (Reuters) - New legislation approved by
the Brazilian Congress late on Wednesday reinstates a tax
advantage to biofuels compared with fossil fuels, which should
benefit companies producing ethanol  in the long-term, analysts
said on Thursday.
    Brazil's lower house approved the government-sponsored bill
that among other things includes a provision saying biofuels
should enjoy lower taxes than fossil fuels for a period of 20
years. urn:newsml:reuters.com:*:nL1N2YU2Q0
    The bill added that states and the federal government should
go back to preferential taxation levels to biofuels seen before
May 15, when another law had changed the way fuels were to be
taxed.  urn:newsml:reuters.com:*:nL8N2YE4L2
    "From our perspective, this measure is very positive for
agribusiness companies, as it will maintain competitiveness of
biofuels in the long term," Citi analysts Gabriel Barra and
Joaquim Alves Atie said in a research note.
    "With a constitutional guarantee that renewable fuels will
pay lower taxes relative to fossil fuels (recognizing fossil
fuels' negative externalities), ethanol and other biofuels could
enjoy a much stronger outlook ahead," said investment bank BTG
Pactual in a report.
    BTG said Brazilian mills will be able to be more profitable
on their ethanol sales with the new legislation and gave a "buy"
recommendation for companies whose shares were previously hurt
by the changes made in May, such as Raizen  RAIZ4.SA , Sao
Martinho  SMTO3.SA , Jalles Machado  JALL3.SA  and Adecoagro
 AGRO.N . 
    The May tax modifications ended up reducing ethanol's
competitiveness against gasoline at the pump, and pressured
sugar prices on the international market as mills started to
make less ethanol and more sugar.
    That trend, according to the analysts, could now be 
reverted.
    BrasilCom, a federation representing fuel distributors, said
it supports the changes because it will likely lead to a more
balanced fuel market in terms of selling volumes for both
gasoline and ethanol.

 (Reporting by Rafaella Barros and Marcelo Teixeira; Editing by
Chris Reese and Marguerita Choy)
 ((marcelo.teixeira@tr.com; +1 332 220 8062; Reuters Messaging:
marcelo.teixeira.thomsonreuters.com@reuters.net - https://twitter.com/tx_marcelo))