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Brazil mulls reintroducing diesel tax to pay for Lula’s car program

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© Reuters. FILE PHOTO: Brazil’s President Luiz Inacio Lula da Silva gestures during the South American Summit at Itamaraty Palace in Brasilia, Brazil May 30, 2023. REUTERS/Ueslei Marcelino

By Marcela Ayres

BRASILIA (Reuters) – Brazil’s government is considering reintroducing a federal diesel tax this year to pay for leftist President Luiz Inacio Lula da Silva’s plan to bring down car prices, a source with knowledge of the plan told Reuters.

Former President Jair Bolsonaro’s administration last year cut diesel taxes to combat inflation ahead of the presidential race.

Lula had previously said the exemption would run through the end of 2023, but his economic advisors have now proposed a partial reinstatement of the tax in September to pay for his car plan, said the source, speaking on condition of anonymity.

The measure, first reported by the G1 news portal on Saturday, is expected to generate around 3 billion reais ($607 million), said the source. The Finance Ministry did not immediately respond to a request for comment.

Lula, a former metal worker and union leader in car-producing Sao Paulo state, wants to expand car access and bolster the automobile industry by providing tax credits to manufacturers who lower sticker prices.

Under the new plan, 1.5 billion reais would fund incentives for the domestic automotive sector to boost fleet modernization and lower consumer vehicle prices, the source said.

The plan foresees carmakers gaining tax credits in exchange for granting discounts, which are anticipated to range from 2,000 reais to 8,000 reais for cars based on energy efficiency, price and domestic content, said the source.

On Monday, Finance Minister Fernando Haddad told journalists that most of the program’s resources will be directed toward discounts for public transportation and freight vehicles.

Last week, he said the program had undergone revisions after the government initially revealed plans to reduce federal taxes on vehicles priced up to 120,000 reais.

($1 = 4.9426 reais)

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