Brazil’s New 20 Percent Ethanol Import Tax Rule Takes Effect

New rules governing Brazil’s ethanol imports, which slap a 20 percent penalty for volumes above a tax-free import quota, took effect on 1 September, authorities said.

Brazil’s foreign trade chamber Camex said in an official written resolution that the rules will be valid for two years.

It is the first time that Brazil has taxed ethanol imports, with the government reversing its position of avoiding taxes on the biofuel’s trade, following complaints from local producers about rising imports. The government had opposed an import tax so as to encourage use of the biofuel worldwide, enabling it to boost exports of the fuel, a stance it shared with the United States.

U.S. producers will be the hardest hit by the Brazilian tax, since almost all imports come from the United States.

Camex said 600 million liters of ethanol will be allowed in per year tax free but it will be broken down by quarter. Once imports have surpassed 150 million liters in any given quarter, the 20 percent tax will begin.

It also said the Trade Ministry will work on complementary legislation looking to define how the tax-free quota will be divided among ethanol importing companies.

A report by local broadcaster BandNews on 1 September, said some importers had rushed to guarantee as much as 500 million liters of ethanol importing licenses before the new rule’s publication. Reuters could not immediately confirm the information.

The import restriction comes at a time when ethanol sales are rising in Brazil, due to a recent change in local PIS/Cofins taxation that made the biofuel more competitive against gasoline at the pump.

Sales of hydrous ethanol, the type used by flex-fuel cars popular in Brazil, jumped 14 percent in Brazil’s center-south in the first half of August.

Some analysts expect ethanol to get a larger boost this month after Petrobras increased gasoline prices by almost 7 percent in the last two days, following higher values in the international market due to the Harvey storm in the U.S.

That situation could shift more cane to ethanol production at Brazilian mills, reducing the amount of sugar output.

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