Brazil to suspend diesel tax; sources say bank tax to be hiked

BRASILIA (Reuters) - Brazilian President Jair Bolsonaro said he would issue a decree on Tuesday suspending a tax on diesel fuel, a move aimed at placating truckers who threatened to strike, while sources told Reuters the government would hike taxes on banks to offset lost revenue.

FILE PHOTO: Brazil's President Jair Bolsonaro speaks during a ceremony to launch a program to help new mayors, at Planalto Palace in Brasilia, Brazil, February 23, 2021. REUTERS/Ueslei Marcelino/File Photo

In a video posted to social media on Monday, Bolsonaro said the decree would suspend both the so-called PIS/Cofins tax on diesel and taxes on cooking gas for two months.

“The decrees should be published early tomorrow to zero cooking gas federal taxes and PIS/COFINS for diesel for 2 months,” he said.

The president acknowledged the government would need to compensate for the lost revenue in another way, without specifying how.

“We’ll have to take it out of somewhere.”

Two people with knowledge of the matter, who spoke on condition of anonymity, said the government planned to raise a tax on banks’ net income to about 23% from 20% to make up for the lost revenue.

Shares in Brazilian banks fell on Monday afternoon after the newspaper O Globo first reported the shift in tax policy. The government is also planning to end some tax exemptions for vehicles and petrochemical products, the newspaper said.

Bolsonaro had promised a reduction in diesel prices by cutting federal taxes on the fuel, following threats that truckers would go on strike. That would cost 3.6 billion reais ($640 million) this year.

Bolsonaro’s office directed questions on the possible banking tax hike to the Economy Ministry, which did not reply to a request for comment.

Shares in the largest banks extended losses in late afternoon after the O Globo report. Preferred shares in Itau Unibanco Holding SA closed down 3% at 24.90 reais, and preferred Bradesco shares lost 3.3% to 22.24 reais. Units in Banco Santander Brasil fell 1.2% to 37.09 reais.

($1 = 5.6228 reais)

Reporting by Rodrigo Viga Gaier in Rio de Janeiro, Ricardo Brito and Isabel Versiani in Brasilia, and Paula Laier, and Tatiana Bautzer in Sao Paulo; Editing by Jonathan Oatis and Peter Cooney