BRASILIA, Sept 10 (Reuters) - Brazil plans to include its struggling sugar and ethanol industries in a tax refund programme that would cost the state about 900 million reais ($395 million) in revenue, a government source close to the negotiations told Reuters.
Finance Minister Guido Mantega decided to extend the tax benefits to the sugar and ethanol sectors starting next year after holding talks with industry executives on Tuesday, the official said on condition of anonymity.
The existing programme, known as Reintegra, gives producers of manufactured goods a tax refund of three percent of the value of their exports, either in the form of a credit against their income tax or as a cash payment.
Facing a tough re-election race, President Dilma Rousseff has recently sent market-friendly signals in hopes of recovering the trust of both voters and investors after the economy sank into recession this year.
The Brazilian sugar and ethanol industries have been hit hard by some of the administration’s policies, which have kept domestic gasoline prices artificially low to avoid a surge in inflation.
Nearly 50 of Brazil’s cane mills, which once numbered about 400, have closed their doors since the 2008 global financial crisis and another 60 or so have sought bankruptcy protection from creditors.
Opposition candidates Marina Silva and Aecio Neves have blamed Rousseff’s price-control policies for raising inflation expectations and hurting the finances of state-run oil company Petrobras.
Silva, showing in a recent opinion poll as tied with Rousseff in a likely runoff vote in October, has vowed to raise gasoline prices if she is elected. This would help ethanol producers who compete with gasoline at the pump.
Extending the tax benefits next year will put extra financial pressure on the government, which is already struggling to save enough money to reach a key fiscal target in 2014. (1 US dollar = 2.2855 Brazilian real) (Reporting by Alonso Soto; editing by Keiron Henderson)