Brazil will give newly established automakers in the country a break from higher taxes in exchange for the companies meeting targets that will be evaluated every six months, Folha de S Paulo newspaper reported.
Brazil last month raised the so-called IPI tax on autos by 30 percentage points, excluding those cars with at least 65% local content. The move was meant to slow imports, which this year have accounted for about a quarter of Brazil’s sale of 3m vehicles, Dow Jones Newswires noted.
Under the new rules, likely to be made public next month, newly established car makers will be refunded the higher tax if, after six months, they fulfill certain requisites, Folha reported, without attribution.
According to Folha, carmakers will have one year to bring local content on so-called popular models of cars – those with less powerful engines – up to the requisite 65%. The government justifies the timespan with the fact that there is a well-established supply network for those models. More potent vehicles will have more time to boost local content, Folha said.
Car makers building factories locally will also have to meet regular construction deadlines, such as for obtaining environmental licenses and for progress on the plant, Folha said.
The new measures are intended to avoid problems such as what happened with Kia Motors partner Asia Motors last decade, Folha said. Asia Motors was given benefits to build a factory in Brazil but never carried out the plan and now the government is trying to get BR$2bn (US$1.14bn) from the company.
The government will also change the way it calculates local content, according to Folha. Previously the 65% was measured relative to the final sale price, with non-production costs such as marketing and advertising included. The new rule will measure local content based on cost of production, Folha said.
Brazil’s finance ministry declined to comment ro Dow Jones Newswires while the trade ministry’s press office didn’t immediately return calls seeking comment.
The finance ministry did, however, confirm the government would use non-automatic-import licensing, a practice allowed under World Trade Organisation (WTO) rules, to control auto imports while it waits for the tax increase on imported vehicles to take effect next month.
The decision came after a Brazilian Supreme Court ruling last month suspending a recent increase in the country’s IPI industrial-products tax on auto imports until 16 December, a separate Dow Jones report said.
With nonautomatic-import licensing, the government is able to exercise tight control over import levels for up to 60 days, allowing time for the tax measure to go into effect. Non-automatic licensing amounts to a grant of government power to delay imports at point of entry into the country.
“We’re not going to allow a flood of imports in the meantime,” Diogo de Oliveira, a finance ministry official, told Dow Jones.
He said the government would allow auto imports in accordance with historic averages.
Brazil recently used non-automatic licensing to curb imports from Argentina in a trade dispute with that country.