Brazil Expands Tax Credit to Ethanol, Sugar Exporters

Sept. 10 (Bloomberg) — For the second time this month,
Brazil is taking action to stimulate its ethanol industry after
falling demand prompted criticism of President Dilma Rousseff.

Brazil will expand a tax credit to sugar and ethanol
producers to spur demand for the biofuel, Finance Minister Guido Mantega told reporters in Brasilia today. Under the program,
known as Reintegra, producers will receive a tax credit worth
0.3 percent of their exports.

“Ethanol and sugar will enter immediately in the Reintegra
program,” Mantega said. “This will help exporters because it
cheapens the Brazilian export and pays a devaluation of the
exchange rate.”

Demand for ethanol in Brazil has declined over the last
five years. Producers blame Dilma, whose effort to contain
inflation by blocking state-run Petroleo Brasileiro SA from
raising gasoline prices has depressed demand for the sugar cane-derived biofuel.

The credit should be raised to 3 percent next year, Mantega
told the newspaper O Globo yesterday.

Only 25 percent of Brazil’s flex-fuel vehicles used ethanol
last year, down from 82 percent in 2009, as prices compared to
gasoline have risen in most parts of of the country, according
to a December report from the sugar and ethanol consulting
company Datagro.

Unica, an ethanol industry group, said government measures
are insufficient.

“Brazil needs a long-term view, especially on ethanol and
biomass, with clear public policies,” Unica said in an e-mailed
statement.

Dilma’s opponents are highlighting problems in the sugar
and ethanol industry ahead of the Oct. 5 presidential elections.
Marina Silva, who is challenging Dilma, vowed to boost ethanol
consumption in a plan released Aug. 29.

The export tax credit follows last week’s decision by
senators in Brazil to increase the mandatory amount of ethanol
added to gasoline sold at service stations.

To contact the reporter on this story:
Vanessa Dezem in Sao Paulo at
vdezem@bloomberg.net

To contact the editors responsible for this story:
Reed Landberg at
landberg@bloomberg.net
Jim Efstathiou Jr., Robin Saponar

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