A 30% increase in IPI (industrialised products tax) has hit imported and some locally-made cars since 16 December but the Brazilian government softened the blow with a 30% cut for for those who can produce locally with a new minimum local content or import Mexican or Mercosur-made models under existing free-trade accords.
All models imported from elsewhere, even by automakers with manufacturing plants here, are not always exempt from the higher taxes, good examples are the Fiat Freemont and Dodge Journey crossovers. Chrysler has a plant in Mexico but not in Brazil or Mercosur, so the Journey is taxed at the new higher rate, unlike the Freemont because Fiat produces the 500 in Mexico and also has a plant in Brazil.
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All this should have boosted retail prices 20% to 25% yet it’s unlikely this will happen. Deals with foreign suppliers are likely to absorb part of the rise and the high value of the Brazilian currency has allowed very comfortable profit margins in the last three years which can be trimmed a bit.
The IPI rise is temporary and should last four or five years but some details aren’t yet clear. The government has already said the degree of local production and minimum local content needed will be increased and Brazilian research centres and R&D and capital expenditures proportional to turnover will also be required.
Nonetheless, almost all automakers producing here should be able to comply with the new rules. But there’s doubt about the newcomers with factories already announced (JAC, Lifan, and BMW – the last still to reveal location, product and investment) or those with plants already under construction, like Chery.
These newcomers were expecting some government concession and are hoping that somehow the IPI rise on their current imported models will be deferred. Yet sources in Brasilia, the nation’s capital, say this is unlikely to happen.
More likely is flexibility in meeting the localisation deadlines, giving local suppliers time to develop parts and components.
On the same day the tax went up, Hyundai-Caoa, an Anfavea (manufacturers association) member, went to court seeking permission to import additional vehicles exempt from the new tax.
The joint venture, which assembles the Tucson SUV and HB light trucks, is happy to wait for a court ruling as it has enough stock in Brazil to hold current retail prices for the time being and this reduces the risks of eventually losing the case which would lead to it paying the tax with penalties.
Hyundai of Brazil did not comment. The separate car making unit will open its own factory in November.
