Brazil plans tax breaks for ethanol sector -paper

* Govt prepares package to stimulate ethanol production

* Ministries discussing tax breaks and fuel price hike

SAO PAULO May 31 (Reuters) - Brazil's government plans to cut taxes for its ethanol sector to stimulate production of the widely used biofuel, as ethanol output remains anemic after the 2008 financial crisis triggered industry consolidation, local papers reported on Thursday.

According to Brazil's Valor Economico financial daily, an unnamed, high-level source in the administration said that the government is drafting a package that will include the reduction or zeroing out of the so-called PIS/Cofins taxes, which account for about 12 centavos ($0.06) of the typical 1.87-real-per-liter price for ethanol in Sao Paulo.

The government is also studying a possible reduction of the IPI tax on machinery and equipment required in the construction of new ethanol mills, in an effort to boost future production of the fuel.

Valor even said the government may raise the price of gasoline to allow ethanol prices to rise in tandem at the pump, which would improve mills' returns from sales of the fuel that accounted for over half of Brazil's gasoline market in 2009. Today ethanol accounts for only around 35 percent of the market.

"We are going to make production of ethanol cheaper. These measures are under consideration and we want to implement them as soon as possible," the source is quoted as saying.

The president of Brazil's oil regulator ANP, Allan Kardec Duailibe, said earlier this week that Brazilian ethanol would only return to being competitive with gasoline at the pump in two to three years.

The Folha de S.Paulo newspaper said four ministries are currently discussing a package of measures to help the ailing industry. They include the ministries of mines and energy, finance, agriculture and trade and development.

"The measures are more structural, of a long-term nature," said a participant in the ministerial talks quoted by the Folha.

source: reuters