Brazil keeps tax on autos low to stimulate economic growth

The Brazilian government postponed until next year increasing taxes on the sale of cars and trucks in a bid to stimulate demand for manufactured goods and spur economic growth, the finance ministry said.
The IPI tax on manufactured products was reduced last year for vehicles as part of a barrage of tax breaks and other stimulus measures implemented by President Dilma Rousseff’s government to restore life to a flagging economy in Latin America’s largest nation.
The tax on vehicles was reintroduced this year and the government planned to restore the levy to previous levels, but weak vehicle sales led it to put off the plan.
Finance Minister Guido Mantega said the government wanted to, “avoid the risk of a drop in sales throughout the year.”
“The car industry is very important for Brazil’s economy; it accounts for 25% of industrial production,” Mantega said on Globo TV. “So, to keep industrial output growing, it is important that the auto industry keeps growing.”
Brazil’s economy grew just 0.9% last year, a miserable performance following last decade’s boom. Along with currency losses, it caused Brazil to fall back behind Britain to seventh place among the world’s largest economies.
The economy perked up and grew somewhat faster in the last three months of 2012 when private investment rebounded, but manufacturing remained stuck in its years-long slump, falling 0.5% in the fourth quarter.
A stagnant economy that is unaffected by government stimulus measures, combined with rising inflationary pressures, has begun to cloud the 2014 re-election prospects for Rousseff, though she is still highly popular because of low unemployment.
The Brazilian central bank expects the economy to expand by 3.1% this year, while Mantega still believes GDP growth could top 4%.
The ministry said the postponement of the IPI tax increases for vehicles through December will cost the government US$1.1 trillion in lost tax revenues.
“With this decision, the government is stimulating not just the automobile industry, one of the main drivers of the economy, but also the whole chain of industries such as car parts, upholstery and accessories,” a ministry statement said.
The tax on larger cars with flex motors of up to 2,000 cc will remain at 7% instead of going up to 9% as planned, and gasoline cars will continue to be taxed at 8% instead of rising to 10%.
Sales of trucks will continue to be exempt from any IPI tax, the ministry said.
(March 31, 2013)