Brazilian Congress Approves Bill to Reduce Fuel Taxes Using Oil Revenues

The Brazilian Senate and Chamber of Deputies have approved a bill that allows the federal government to use extraordinary revenues from oil and gas sales to reduce taxes on fuels. The project now awaits sanction by President Luiz Inácio Lula da Silva. The legislation was passed with significant majorities, receiving 318 votes in favor and 113 against in the Chamber, and 61 votes in favor and 2 against in the Senate.

The bill enables the government to offset tax reductions on diesel, gasoline, ethanol, and aviation kerosene using royalties, dividends from state companies, and other oil sector taxes. To maintain the competitiveness of biofuels, the text mandates that if gasoline taxes are reduced by 30 percent or more, ethanol taxes must be zeroed. Additionally, the bill provides a subsidy of up to 1.2 billion reais for ethanol producers between May and August 2026.

Beyond fuel, the legislation includes several unrelated provisions, referred to as jabutis. These include tax benefits for the production of fertilizers and critical minerals, as well as tax exemptions for the 2027 Women's World Cup. The bill also authorizes the Ministry of Defense to increase spending by up to 2.5 billion reais outside the fiscal framework this year and allows the anticipation of up to 3 billion reais in health and education spending from 2027 to 2026.

To address fiscal concerns, the bill introduces adjustment triggers for 2027. These mechanisms limit the growth of certain mandatory expenses if a primary deficit is projected. Finance Minister Dario Durigan stated that these triggers could reduce mandatory spending by approximately 10 billion reais next year.

Outlets with a center lean frame the bill as a strategic trade off where the government accepted expanded spending in an election year to signal fiscal responsibility for 2027. Center left outlets emphasize the goal of cushioning the impact of international fuel price hikes on the national economy. Center right outlets focus on the inclusion of the jabutis and the specific legal mechanisms used to bypass the Law of Fiscal Responsibility.