Carmakers Incentivized on Brazil Parts: Daily

By Ben Tavener, Contributing Reporter

RIO DE JANEIRO, BRAZIL – Car manufacturers who start using a minimum proportion of components made in Brazil in their vehicles, and also invest in innovation within the country, will pay a lower rate of IPI – the tax paid on industrialized products. Those failing to meet the requirements could have 30 percentage points added to their rate of tax.

The Ministers of Development, Fernando Pimentel, and Guido Mantega, announced that the government will increase by 30 percentage points at the rate of IPI on imported cars, photo by Fabio Rodrigues Pozzebom/ABr.

The government wants to improve the competitiveness of Brazil’s carmakers and stimulate production in the country. Consumers are hoping to see some of the business tax savings carry through to a lower purchase price, which currently costs more than many other countries.

“Brazil has been harassed by international industry. Consumption for vehicles has increased but imports have filled this extra demand. There’s a risk that jobs could go overseas,” said Finance Minister Guido Mantega.

To qualify for the tax cut, carmakers will have to invest in technology, use 65 percent of homegrown parts (from Brazil or Argentina – thanks to a common agreement) in their vehicles, and have at least six out of eleven stages of assembly in Brazil.

Companies now have 60 days before the Ministry of Development, Industry and Foreign Trade checks whether they are eligible for the tax incentive, and then a further 15 months either to maintain or increase levels of technology investment.

Cars from outside the Mercosul economic zone will automatically be liable for a higher tax rate. The scheme will run until December 31, 2012, and in addition to cars, the incentive will also be extended to those producing tractors, buses, trucks and light commercial vehicles.

Read more (in Portuguese).

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