Originally published in the July 2 edition of World Tax Daily (Copyrights Tax Analysts)
Brazilian Finance Minister Guido Mantega on June 29 announced federal excise tax (IPI) breaks and other tax measures to aid Brazil during the international financial crisis and stimulate the country’s growth.
The IPI measures include the reduction of IPI on capital goods (machinery and equipment) and the extension of IPI rate reductions for vehicles, home appliances, construction materials, and other items. The government also will extend for motorcycles the zero rate Program for Social Integration contribution (P.I.S.) and the Contribution for the Financing of Social Security (COFINS).
All tax reductions and IPI extensions for capital goods will be implemented by means of presidential decrees within the next few days. The zero rate P.I.S. and COFINS for motorcycles should be extended by a provisional measure issued by President Luiz Inácio Lula da Silva.
For capital goods, the government will reduce IPI for 70 items (still to be listed) until December 31. The reduced IPI rates for home appliances will be extended to October 31.
The government will grant a similar three-month extension to the reduced IPI rates on cars and light pickups, which were to end on June 30 (after a first extension was made on March 31). The reduced and zero rates will be extended to September 30, and thereafter rates will be gradually increased until the reductions are eliminated by December 31. Automakers and dealers welcome the extension, which could make 2009 the best year for the industry in decades (surpassing the record sales of 2008).
For trucks and construction materials, whose IPI reductions would also end on June 30, the government will grant a six-month extension to December 31.
Finally, the zero rate P.I.S. and COFINS on motorcycles, created by Provisional Measure 460/2009 and originally valid until June 30, will be extended three months until September 30. As a condition for this extension, motorcycle manufacturers have committed to maintain job positions and avoid layoffs.
According to Mantega’s presentation released by the Ministry of Finance, the new tax extensions amount to BRL 3.34 billion (about $1.70 billion) in tax cuts in the second half of 2009. The IPI reductions for vehicles represent more than 42 percent of the cuts (BRL 1.41 billion), civil construction materials 20.52 percent (BRL 686 million), capital goods 12.38 percent (BRL 414 million), and trucks 11.6 percent (BRL 388 million).
Mantega said the extensions are necessary to keep the economy running and avoid recession and layoffs. The first months of the tax breaks, he said, have shown the success of the government’s anticyclical policies, which have minimized the effects of the global international crisis on the country.
David Roberto R. Soares da Silva