Brazil new auto tax breaks
By Adina Moloman
Sources: Forbes, The Wall Street Journal
Brazil is set to become the world’s third-largest car market by 2015, after China and the U.S. Mexico is becoming the 8th largest auto producer in the world.
Having such a huge potential market distribution, Brazil started its fist trimester of 2012 trying to protect its local auto manufacturers. The Brazilian government intended to change the auto trade agreement with Mexico by limiting tariff-free imports with a tax increase of 30 percentage points on imports of cars manufactured in Mexico. Not only that, Brazil government wanted to extend the agreement to trucks and buses.
Automobile Mexico Manufacturers specialize in larger models while those in Brazil are specialized to make smaller ones.
After a month of disputes the agreement reached between the two countries was that Mexico will slash average annual exports to Brazil to $1.55bn for three years and also agreed that car manufacturers should increase the locally sourced content of vehicles from 30 per cent to 40 per cent during the next five years.
The new settlement would preserve most of Mexico’s preferential treatment with Brazil.
Brazil’s growing protectionism was risking in locking in high costs.
After taking protectionist decisions at the beginning of the year that were jeopardizing the achievement of its gold, the Brazilian government is working on new reforms to make Brazil more competitive.
The Brazilian government implemented starting this October 2012 long-term tax breaks to encourage carmakers to invest in science, technology and fuel economy.
Worldwide carmakers with manufacturing plants in Brazil can pay less tax on imports if they do more engineering work in Brazil and use mostly Brazil-made auto parts for local production. Brazil is adopting fuel-efficiency targets similar to those adopted in Europe. Similar decisions on fuel efficiency targets where also made in Mexico. It is expecting new actions to regulate the auto industry in Mexico by the new elected government.
