By Ben Tavener, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The Brazilian government has extended its policy of reduced IPI (tax on industrialized products) for vehicles for a fourth time, with a return to standard rates now scheduled for December 2013. Until then it will range between two and eight percent. 

Car showroom in São Paulo, Brazil News
Car sales have been boosted by the lure of substantial reductions in IPI tax on many vehicles, photo by Marcela Camargo/ABr.

The initial term for reduced IPI, which was cut to between zero and 6.5 percent depending on the vehicle, was only three months when it was first announced in May 2012, but the policy was repeatedly extended as the economy showed scant evidence of a recovery.

However, the IPI rate is being gradually increased: vehicles running flex-fuel or gasoline engines under 1,000cc, which had enjoyed zero-rated IPI down from an original seven percent, had the rate increased to two percent.

For those flex-fuel engines between 1,000 and 2,000cc, the original 11 percent had been slashed to 5.5 percent and has now been increased to seven percent. Equivalent gasoline engines had theirs slashed to eight percent.

Under previous plans, April 1st should have seen these values creep up towards the normal rate, but instead they have been held until December, depriving the tax coffers of a further US$1.1 billion.

However, the government believes the lower IPI rate, one of a raft of anti-crisis stimulus measures to have been implemented, are outweighed by the benefits to be reaped from stronger sales in the country’s auto industry.

It is still to be seen whether the government will extend the policy for domestic appliances: refrigerators, ovens and washing machines had been exempted from the tax to boost sales. After bumper sales in 2012, the white goods industry is asking the government to maintain the tax break, as it fears that with IPI rates returning to their normal level, sales will slump by as much as ten percent.

President Rousseff’s government is said to be keen to keep auto industry sales performing strongly; politicians hope this in turn will continue to stimulate the country’s economy and keep inflation in check, something of particular important in the run-up to presidential elections in 2014.

Read more (in Portuguese).

* The Rio Times Daily Updates feature is offered to help keep you up-to-date with important news as it happens.



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