Brazil to gradually reduce tax breaks on cars in 2014

Article by Anita Panait, on December 27, 2013

The Brazilian government will gradually cut tax breaks on cars in 2014, increasing worries among carmaker that higher duties could impact vehicle sales in the country.  Brazil had previously disclosed plans to return the industrial products tax, known as IPI, which is charged on cars and other products to the normal level to make up for the billions of dollars in lost revenues that weaken the country’s finances this year.

The Brazilian government, however, decided to raise the IPI tax on basic passenger cars to just 3 percent starting in January 2013, instead of an abrupt return to the original rate of 7 percent. In June, Deputy Finance Minister Dyogo de Oliveira said that the government will analyze whether it would hike the tax back to 7 percent, depending on market conditions at that time.

Brazil temporarily lowered the IPI tax on cars, furniture and home appliances in 2012 in a bid to jump start its struggling economy.

Increasing the IPI tax for both cars and furniture will result to an extra BRL1.146 billion ($482.91 million) in tax revenues until June 30, de Oliveira said. Carmakers in Brazil are concerned that higher taxes and new obligatory safety standards will hike the cost of cars and cut sales in the country.

Auto sales in Brazil are on pace to retract this year as credit gets tighter and the government gradually decrease its stimulus. Fiat, Volkswagen, General Motors and Ford Motor make up over 70 percent of new car sales in Brazil. According to de Oliveira, the Brazilian government had not determine the impact of higher taxes on inflation, adding that he did not expect the price transmission to be immediate.

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