Similar with what has been done recently to vehicles, motorcycles and certain construction materials, Brazil’s executive branch now considers generous tax reductions for certain home appliances, such as fridges, washing machines, and the like.
The tax reductions would be in principle focused only on the federal excise tax (IPI), and, as the other similar tax breaks, would also be temporary, most likely for three months. The main focus is more expensive home appliances such as fridges, freezers, ovens, washing machines and others, which IPI rates vary between 5 percent (ovens) and 20 percent (washing machines). Fridges and freezes are taxed at the rate of 15 percent.
A presidential decree is expected for the next few days with a list of eligible products. Until when the government debates the extension of the tax reductions as there is no consensus as to the impact of the reduction to consumption and tax revenues. Two possibilities are under consideration: a zero rate or a rate reduction by 50 percent (IPI rate being reduced to between 2.5 percent and 10 percent, as the case may be).
The final decision on those new tax cuts will depend on the studies on their impact to federal tax revenues. The government needs to find new ways to compensate the loss in revenues, most probably through tax increases in other less sensitive areas. Among the target sectors to be hit by tax increases are beverages and cigarettes. The latter has recently suffered an IPI increase of 23.5 percent as a consequence of tax breaks granted to vehicles, motorcycles and construction materials. But the government considers new tax increases to face the proposed tax cuts.
Among beverages, the government considers tax increases to the so-called “hot beverages” (distilled beverages), such as vodka, the Brazilian cachaça, whisky, liqueur, etc.
If necessary, the government may consider, in a second round, to increase taxation of the so-called “cold beverages”, such as soft drinks and beer. But such a tax increase is considered as a last resource because soft drink and been companies are still digesting the significant changes to their taxation system (Law No. 11,727/2008), where IPI now takes into consideration quantity produced and retail price (as opposed to a fixed amount of tax per unit of product regardless of its actual price).
David Roberto R. Soares da Silva