Brazil aims to prop up automotive with tax breaks for car purchases

SAO PAULO (ICIS)–Brazilians who purchase a vehicle will experience considerable tax breaks from the state as the government tries to prop up the petrochemicals-intensive automotive sector.

On Thursday, Brazil’s vice president and minister for industry, Geraldo Alckmin, said the tax breaks would be implemented according to three criteria and, in any case, in vehicles of a value up to Brazilian reais (R) 120,000 ($23,900).

The plan, however, is still to be finalised together with the ministry of finance, said Alckmin, although he added it should be published under provisional measures within 15 days.

The tax breaks will vary between 1.5% and 10.7% of the vehicle’s value and will be granted according to:

• The vehicle’s value: The lower the value, the greater the tax break.
• Its energy efficiency: Less-polluting cars will have a greater tax break.
• Its origin: Tax breaks will be larger for those vehicles which have been manufactured in Brazil.

“If the car fits the three guidelines – it is cheaper, pollutes less and has more Brazilian products in its manufacture – the greater the discount will be,” said the minister.

“In addition, if it was marketed through direct sales [by car dealerships], the discount increases.”

According to Alckmin, the cheapest car in the Brazilian market currently sells for R68,000; with the plan announced on Thursday, that price should stand below R60,000, he added.

DOWNTURN
The Brazilian automotive sector has struggled at the start of 2023 as a slowing economy met high interest rates implemented by the central bank to fight off high inflation, which are deterring consumers from big-ticket purchases.

The main interest rate in Brazil stands at 13.75%.

Although production in January-April stood higher than in the same period of 2022, the industry has had several plants idled for some time in 2023 as its stocks were higher than the demand for them.

Because of those stoppages, the country’s automotive trade group Anfavea lowered its forecast for 2023 production in April.

Until April, Anfavea expected Brazil’s automotive production to stand at 2,421,000 units, up by 2.2% compared with 2022.

In April, its new forecast expects 2023 output to stand at 2,391,000 units, up 0.98% year on year.

In 2022, Brazil produced 2,367,738 units.

Anfavea had not responded to a request for comment at the time of writing.

Brazil’s wider manufacturing sectors are also in the doldrums; in April, overall manufacturing activity posted its sixth month of decline, according to the PMI index.

The automotive industry is a key consumer of petrochemicals: the sector sells around 20% of the materials it produces to automobile manufacturers.

A typical vehicle contains several chemical products such as antifreeze and other fluids, catalysts, plastics, rubber tyres and hoses, upholstery fibres, coatings and adhesives.

($1 = R5.02)

Front page picture: Vehicles in the parking lot of a Volkswagen Brazil plant in Sao Bernardo do Campo; archive image. Source: Sebastiao Moreira/EPA/Shutterstock