Brazil slashes industrial tax by 25% for most products

RIO DE JANEIRO, BRAZIL – Brazil’s government cut the industrial tax (IPI) by 25% to fight inflation and help industry rebound from the pandemic.

Published in the Federal Gazette on Friday, the tax cut has immediate effect and “is a milestone of the beginning of Brazilian reindustrialization after four decades of de-industrialization,” said Minister of Economy Paulo Guedes.

The 25% cut in the IPI tax is applicable to all products – including beverages and weapons. The only exception is tobacco, which pays a 300% rate.

Guedes acknowledged the measure has a short-term impact on inflation, but highlighted it was designed as a policy to increase industrial productivity.

The Minister said it will represent a loss of some R$20 (US$3.9) billion in tax revenue, with the federal government giving up R$10 billion and the rest coming from state and municipal revenue.

According to the Minister, a 50% reduction in the tax had been on the table, but was not adopted “out of respect for the industry established in the Amazon.”

Companies operating in the Manaus Free Trade Zone are IPI-exempt, but can generate credits equivalent to the tax to deduct from the payment of other taxes. The lower the IPI rate, the fewer the credits.

A carbon market being designed by the government for the coming months is intended to greatly benefit the region and the goal is to promote a transition from IPI credits to carbon credits, Guedes argued.

Earlier on Friday, President Jair Bolsonaro said he would have “good news” for Brazilian business in the afternoon regarding “the country’s industrialization,” but provided no details.