A gas station worker fills up a car's tank with ethanol in Cuiaba, Brazil, October 2, 2019. REUTERS/Marcelo Teixeira
SAO PAULO, Dec 15 (Reuters) - A settlement reached by Brazil's Supreme Court in a case opposing the federal government and Brazilian states about state-level taxation on fuels could lead to higher gasoline prices, and improved market conditions for ethanol.
The federal government and the states agreed late on Wednesday to a proposed settlement that will continue to limit the so-called ICMS state tax on items considered "essential" such as diesel fuel, natural gas and cooking gas, but free up others.
here will be no specific ceiling for some goods, including gasoline, leading the way for states to reinstate higher levies and recover lost revenue.
The court case followed a move by Brazilian President Jair Bolsonaro earlier this year to reduce ICMS over fuels amid the presidential campaign.
States that lost revenue went to the Supreme Court saying the federal legislation that cut and limited ICMS tax was unconstitutional, since state-level taxes should be defined by local governments.
"Regarding gasoline, it is expected a significant price increase coming January," analysts Raion Consultoria said in a note.
Comsefaz, a national committee representing state tax authorities, said about the settlement that ethanol and other biofuels would likely have favorable tax status in comparison to gasoline, due to their environmental credentials.
After the tax cut earlier this year ethanol lost price advantage over gasoline at the pump in Brazil, where most cars can use either fuel.
