Brazilian govt mulls windfall tax on oil companies, but Guedes opposes – sources

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Brazilian Economy Minister Paulo Guedes gestures during a meeting at the Economic Affairs Committee (CAE) of the Brazilian Federal Senate in Brasilia, Brazil March 27, 2019. REUTERS/Ueslei Marcelino/File Photo

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BRASILIA, June 20 (Reuters) – Brazilian Economy Minister Paulo Guedes is strongly opposed to the idea of ​​raising taxes on the oil and gas industry, four ministerial sources told Reuters, after several days of government discussions on how to deal with the political backlash on high fuel prices.

Economy Ministry officials, who requested anonymity to comment on the confidential discussions, said the internal debate began on Friday, when state oil company Petrobras (PETR4.SA) announced a price hike for oil. gasoline and diesel, which has damaged the popularity of President Jair Bolsonaro.

Bolsonaro has called the price hikes, triggered by a corporate policy he has struggled to reverse, a betrayal of the Brazilian people. Lawmakers have threatened to launch a congressional investigation into the company’s conduct. The Petrobras CEO resigned on Monday in the face of political backlash. Read more

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As pressure mounts ahead of October’s general election, the Economy Ministry has held preliminary talks on increasing the so-called Net Income Social Contribution (CSLL) for oil companies, the sources say. .

Guedes pushed back forcefully on the idea, the sources said, because he saw it as a risk of scaring off investors from a possible privatization of Petrobras, which he openly supports.

The Economy Ministry declined to comment on the matter.

Some countries passed a windfall tax on oil company profits amid a commodity shock that boosted profits in the sector but also fueled inflation around the world.

Three of the ministry’s sources said any increases to CSLL would have to wait 90 days before taking effect, which would reduce its potential impact this year.

Higher government revenues could eventually be used to fund more generous income transfers to the poorest Brazilians, sources said, something Economy Ministry officials have long preferred to broad fuel subsidies.

But it would also raise legal questions, as electoral law prohibits the government from increasing social spending in the months before the October elections, sources said.

The new spending would also have to fit into a tight federal budget, requiring another waiver of the constitutional spending cap or a cut in other spending, both considered politically difficult, the sources added.

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Reporting by Marcela Ayres and Bernardo Caram Editing by Brad Haynes and Sandra Maler

Our standards: The Thomson Reuters Trust Principles.

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