Weekly Report - 24 May 2012 (WR-12-20)

BRAZIL| Auto sector stimulus package announced. On 21 May Brazil’s finance minister, Guido Mantega, announced that the government was implementing temporary reductions on its industrial products tax rate (IPI) and its tax on financial transactions (IOF) conducted by physical persons, which are aimed at stimulating the automobile sector. Mantega explained that the government will be reducing the IPI tax rate on imported cars and those that meet local assembly regulations by as much as seven percentage points until 31 August. Thus in the case of locally produced cars, the rate will fall to 0% from 7% for cars with 1.000cc engine sizes; imported cars with the same engine size will see rates drop to 30% from 37%. For cars with bigger engine sizes, the rates will be lowered to 5.5%, from 11%, for locally produced vehicles fitted with flex engines (capable of using ethanol and gasoline) and to 35%, from 41%, for imported vehicles with similar characteristics. Finally, the rates will decrease to 6.5%, from 13%, for petrol-only vehicles that are produced locally; and to 36.5%, from 43%, for imported ones. In addition Mantega announced that the IOF rate will be reduced to 1.5%, from 2.5%. It was also announced that the central bank would adjust its overnight reserve requirements for banks in order to free some US$8.8bn so that the banking system can offer more car loans for individuals. Explaining the government’s decision, Mantega said that they were designed to counteract the impacts of the ongoing international economic crisis. “We are facing a worsening of the international financial crisis… [and this] demands that we intensify our efforts to maintain reasonable growth rates”, Mantega said. He pointed out that the government chose to stimulate the automobile sector because it represents 20% of Brazil’s industrial GDP.

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