Tax Incentives Fail To Encourage Sales Of Brazilian Autos

by Mary Swire, Tax-News.com, Hong Kong

14 May 2009

Auto sales in Brazil dropped by almost 14% last month, despite the introduction of recent tax incentives designed to boost the market.

Figures released this month have revealed that April's car sales dropped by 13.7% - ending the four-month run of increased business for the Brazilian auto sector.

Until now, car sales had risen significantly since the beginning of the year due to the introduction of an IPI industrial products tax break specifically designed to try to spur growth within the industry, which began to suffer amid the onset of the global financial downturn.

The revelation has prompted a strong reaction from both the country's trade officials and industry insiders alike, who are now questioning whether a recent extension to the tax break should continue. Jackson Schneider, president of the Brazilian Automotive Manufacturers Association, Anfavea, commented:

"We know that once that tax break ends, sales will really decline."

The government first introduced the tax holiday - which has reduced the amount of IPI tax levied on some vehicle purchases by as much as 100% - at the end of December 2008. Originally due to expire on March 31, 2009, the regime will now continue to run until June 30 after the government deemed it a success.

It has been estimated that the measure will cost the government around BRL1.35bn (USD560m), although a separate plan to increase tax levies on cigarettes is expected to balance the loss.

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