South America Calling

Brazil Pledges Sugar/Ethanol Export Tax Breaks

Brazil's Finance Minister Guido Mantega announced Wednesday the government will offer tax credits on exports of sugar and ethanol to offset the heavy indirect tax burden.

The credit will be capped at a modest 0.3% of the value exported this year, but the ceiling rises to 3% in 2015. That represents a significant break for an industry that traditionally exports approximately 70% of its sugar production.

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The move is obviously electorally motivated. President Dilma Rousseff's main rival in the October election, Marina Silva, has pledged to help regenerate the sugar and ethanol industry, which has suffered amid the current government's policy of holding down gasoline prices to curb inflation -- cheap gasoline limits demand for ethanol fuel.

Rousseff is trying to counter that play.

However, the Reintegra program under which the credits are offered must first be approved by Congress, which is virtually empty because of elections.

Mantega estimates the credits on offer could reach R$950 million ($415 million), although the real figure will likely be much lower, according to Valor Economico, a local business daily.

Brazil exports a portion of its ethanol production to the U.S. However, weak demand and limited availability means exports will fall by half this season to total 1.2 billion liters ($317 gallons), according to the Brazilian Sugarcane Industry Association (UNICA).

(ES)

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