Brazil’s federal government late in November decided to extend to 31 March, 2010 a cut in the excise tax on industrial products (IPI for short in Portuguese) which has boosted new vehicle sales this year. But there’s one important change.
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Now only flex-fuel (ethanol-petrol) vehicles will benefit from the current 3% tax rate on those with engines up to one-litre and 7.5% for one- to two-litre models.
Petrol-only cars will attract an 11% tax this month, rising to 13% in January (one to two-litre) and the tax will be 25% for cars with larger engines from January.
Finance minister G Mantega admitted the move was an environment-oriented bribe to boost flexible-fuel vehicle (FFV) sales.
It’s hardly necessary. FFVs now account for almost 90% of the Brazilian market and it is estimated that over two thirds of these run almost permanently on locally produced ethanol.
In the last three months, biofuel consumption may have fallen due to a seasonal price hike of over 30% triggered largely by the international sugar price.
CO2 emissions by a FFV running on sugar cane is only about 30g/km (a quarter of the petrol average and the current European target).
Studies have shown that about 85% percent of primary CO2 emissions are absorbed by cane plants’ photosynthesis process, included the greenhouse gases emitted when planting, processing and freighting.
Consequently, the government’s latest tax decision is also seen here as an indirect way of reducing assembled car imports, especially from Europe, South Korea, Japan and China. All these are petrol-only.
However, there have been hints import-only brands have FFVs in the works. After all, none would be willing to stay out of a market that might absorb 4m units annually in four or five years from now.
