Brazil’s government  on Tuesday unveiled a plan to kick-start the nation’s stalled automotive sector with a tax cut for car makers meant to bring consumers lower prices and prevent further industry layoffs, according to Reuters.


The news agency said the measures are aimed at reversing a sharp downturn in car sales in Brazil that have led to a recent round of job cuts at auto makers, including nearly 4,000 at Volkswagen last month.


“We’ve got two agreements with the industry; the first is the question of employment, the second is a commitment to pass on … the reduction of tax on industrial products (IPI) (to consumers),” Finance Minister Antonio Palocci told Reuters.


The news agency said Brazil’s centre-left government said it would reduce the amount of IPI car makers pay on cars with an engine capacity of up to two litres until the end of November.


In return for the tax break, car makers cannot fire workers and are expected to pass cost savings on to consumers, the report added.


Reuters noted that the move was the latest president Luiz Inacio Lula da Silva’s government has announced to revive the stagnant economy – in June, it unveiled new loans for small farmers and measures to give poor Brazilians better access to credit.


The IPI tax will be cut by 4% points between August and October, Reuters said, with car makers obliged to pass on savings of the equivalent of 3% to car buyers.
Car makers currently pay 9% IPI for cars with engines up to one litre. For engine up to two litres, manufacturers pay between 13 and 15%, Reuters said.


The news agency noted that cars sales fell 8% in the first half of the year as consumers stayed away from dealerships given the high cost of financing a car purchase and the general economic slowdown.


To counteract falling sales, many car makers have given their workers temporary leave or tried to lay them off, Reuters added.