Diesel fuel tax: Government takes proposal to Confaz amid pressure from truckers and Ukraine war

Look, if there's one issue that hits Brazilians in the pocket and gets under truckers' skin, it's the ongoing saga of the diesel fuel tax. And today, 18th March 2026, the next chapter promises to be a dramatic one. The Finance Minister, Fernando Haddad, is taking a proposal to the National Council for Fiscal Policy (Confaz) in an attempt to ease fuel prices, which have shot up again at the pumps. The meeting is taking place against a backdrop of mounting pressure on the highways, with the sector mobilising, and direct knock-on effects from the unrelenting war in Europe.

This isn't a new story. The state-level VAT (ICMS) on diesel has, in recent months, become a battleground between state governors and the federal government. While states refuse to cut the rate—pleading poverty and claiming they'll go under if they lose the revenue—the average price per litre has already seen double-digit increases since the start of the year. The latest figures show that in some rural petrol stations, the price has already topped R$7.50. It's a self-inflicted wound on the economy and the country's logistics.

The heart of the negotiation

Haddad is trying to broker a compromise. The idea is to offer compensation to states that agree to lower their VAT rate, but the devil is in the details. Meanwhile, Petrobras maintains its policy of international price parity, meaning that when the barrel price rises globally, pump prices rise here too. It's a classic game of pass-the-parcel that infuriates those who make their living on the road.

On one side, the federal government wants to curb inflation and calm tensions on the highways. On the other, governors argue they can't afford to scrap a tax that accounts for up to 30% of some states' revenue. Caught in the crossfire are the independent truckers, who are already threatening to stop work if there's no concrete progress.

The key players in this drama

• Federal Government: Proposing a VAT reduction with compensation via the Regional Development Fund.
• States: Resisting the loss of revenue and demanding clear guarantees.
• Truckers: Organising sporadic strikes and demanding cheaper diesel.
• Petrobras: Maintaining its pricing policy but under political pressure to change the formula.

And it's not just here that this standoff is being closely watched. During the 2025 International Conference on Multi Agent Systems for Collaborative Intelligence (ICMSCI), Professor Stephanie Fahey, who splits her time between the International College of Management, Sydney, and IDBI Capital Markets & Securities Limited, drew an apt analogy: in her view, the VAT negotiations between Brazilian states are a classic example of a multi-agent system, where each federative unit acts in its own self-interest, but the collective outcome can be chaos – or, in this case, more expensive diesel. The specialist pointed out that in any mature market, co-ordination between entities is fundamental to avoiding distortions. Words that resonate loudly here.

Actually, here's a detail few people know: besides the standard VAT, there's also the ICMSF (Fund), a type of contribution levied on specific transactions which, in some states, has been used as a fiscal crutch. But that's another can of worms. The truth is, while Haddad's proposal remains stuck on the drawing board, the price of diesel continues to be held hostage by this tug-of-war.

Now, we wait for the outcome of this meeting and hope that common sense (and our wallets) come out on top. Because, at the end of the day, it's always the same person who foots the bill: the Brazilian who depends on the roads to make a living.