Brazil’s government plans to offer automakers import quotas and tax credits on technology investments under its new auto industry regime to take effect next year, trade ministry officials have said.
The plan, to be effective between 2013 and 2017, will replace a current 65% regional parts content requirement with a graded tax credit programme aiming for ‘strategic’ regional parts of at least 55%, Dow Jones reported.
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Ministry officials said strategic local content would include only physical components necessary for production of the vehicles and couldn’t include nonessential accessories or services such as marketing or advertising.
“This is an incentive programme in which we don’t intend to force companies to participate,” said deputy trade minister Alessandro Teixeira. “We want to give incentives for companies to promote jobs and income.”
Companies meeting the goal of 55% of parts produced in Brazil or its regional partners will be granted full exemption from Brazil’s IPI industrial products tax, currently charged at up to 30%. Companies meeting less than the 55% target will be granted a proportional tax credit corresponding with the amount of strategic local content used.
“These are requirements based on effort,” said manufacturing development secretary Heloisa Menezes. “The greater the effort companies make to use strategic components, the more tax credit they can receive.”
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By GlobalDataMinistry officials told Dow Jones companies fully meeting the content targets also could be eligible for an additional tax credit of up to 2% for local investments in research and technology.
Alongside the tax credits, the new regime will allow companies reduced tax import quotas to ensure the mix of vehicles they sell in the local market remains competitive.
Teixeira said companies with manufacturing operations in the country would likely obtain larger quotas but foreign-based manufacturers would be eligible for small quotas as an incentive to produce locally.
Teixeira said the details of quota levels and tax incentive rates would be decided by December.
