Brazilian tax decree 'to affect less than half of imports'

17 October 2011

Brazil's IPI tax decree will only affect less than half of the country's imports, according to industry figures.

The Brazilian government's decree to increase the IPI industrial products tax on the sales of imported vehicles from countries outside the Mexico and Mercosul zones will only affect just under half of imports into the nation.

This is according to figures from Anfavea for between January and August this year, which revealed that 49.5 per cent of the 624,700 units brought into the South American country from overseas operations came from states with which Brazil does not have bilateral trade agreements in place.

Last month, the government gave steep tax advantages to vehicle production that included domestic components or were constructed within the country, raising the rates of cars with parts that have been manufactured overseas.

The decision was made in order to diminish the impact of a weak global market and strong foreign competition.

Government officials agreed to raise Brazil's IPI tax on all vehicles by 30 per cent, offering a discount for manufacturers that work in line with a series of investment and domestic content criteria.

The new measures will take effect and remain in place until December 2012 and companies have been given 60 days to make the necessary changes and administrative adaptations.

Furthermore, the tax will not apply to cars, heavy goods vehicles and components from Brazil's Mercosur bloc partners and Mexico.

A spokesperson from GKN Driveline commented: "GKN Driveline South America has followed all the movements of this subject and is ready to react to the changes at any moment."

They added: "We understand the government's reasons and the intent to protect our local industry but we still believe that a fair competition is positive to the Brazilian engineering development."

GKN Driveline has been manufacturing in Brazil since 1974, with operations at Porto Alegre and Charquedas in Rio Grande do Sul, while it also has a sales operation at Sao Paulo.

Anfavea revealed that during the first eight months of 2011, 309,900 units were imported into Brazil, with 250,050 items coming from the burgeoning market of Argentina accounting for 40 per cent of the volume of imported vehicles sold in Brazil.

The neighbouring South American country came in front of South Korea, which accounted for just over 116,000 units.

In addition, the European Union exported 91,700 cars to Brazil, ahead of Mexico which ranked fourth accounting for 65,300 units imported.

Automakers are already acting to take advantage of the tax incentives on offer by the Brazilian government to domestic car manufacturing, with Nissan announcing that it will be building a new plant in the country in a joint effort with partner Renault.

According to Reuters news agency, the France-Japan alliance is keen to expand into what is now the world's fourth-largest car market, with Renault predicting Brazil will become even more important for vehicle manufacturing and demand in the years to come.

The brands' plans are to build a new facility less than 60 miles outside Rio de Janeiro, as well as expanding its current factory in Sao Jose dos Pinhais.

By building vehicles in Brazil with a minimum 65 per cent local content, Nissan will be able to sell its cars to the domestic market without a 30 per cent IPI tax increase imposed on cars from last month to boost the South American country's industry.

Chairman and chief executive of Renault-Nissan Carlos Ghosn said that electric vehicles would be part of Nissan's plans for its Brazilian expansion.

Between January and August of 2011, the Japanese brand sold 36,819 light vehicles in Brazil - which is almost double the demand seen in 2010. 

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