Brazil Said to Be Readying Tax Breaks for Ethanol

Brazil is preparing tax breaks that may channel more of the country’s sugar cane into ethanol production to meet additional demand, two people with knowledge of the plan said.

Proposed changes to the ethanol tax system include lower payments and the possibility of converting the amount paid into credit, said the people, who asked not to be named because the plan hasn’t been made public.

Implementation of the changes is in the hands of President Dilma Rousseff for a final signature, one of the people said. The decision may be announced before sugarcane start getting to mills, in April, one of the people said.

Producers of the biofuel pay taxes of 0.12 real (6 cents) a liter. Energy Minister Edison Lobao told reporters Feb. 4 that ethanol tax cuts were under consideration.

Brazil is expected to harvest 532.3 million tons of sugar cane in the 2012-13 crop season, 7.9 percent more than the previous year, industry group Unica said on Feb. 26. Sugar output will reach 34 million tons, while ethanol output will be 21.3 billion liters, Unica said.

Mills may produce more ethanol to help meet the additional demand caused by the increase to 25 percent of the amount of ethanol blended into motor fuel, which will take effect May 1, Lobao said Jan. 30.

The new blend rate was formally announced today in Brazil’s official gazette and will help Petroleo Brasileiro SA (PETR4) cut losses from importing gasoline.

Sugar may need to drop further to spur millers in Brazil, the world’s largest producer, to make more ethanol at the expense of the sweetener when the 2013-14 season starts there in April, according to a Feb. 14 Macquarie Group Ltd. report.

To contact the reporters on this story: Mario Sergio Lima in Brasilia Newsroom at mlima11@bloomberg.net; Maria Luiza Rabello in Brasilia Newsroom at mrabello@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

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