The Brazilian government has launched a new automotive plan to stimulate growth and production in the country, which should open up the way for lower taxes on both locally produced and imported vehicles. Since the plan was announced earlier this month, foreign carmakers, including China's JAC and Chery, are among the OEMs said to benefit from the new measures, although there are questions about how effective it will bein attracting new automotive investment.

The new programme is designed to regulate Brazil's incentive programme for technical innovation and production expansion. The programme, which will run until the end of December 2017, will benefit domestic carmakers, dealers and those companies investing in the domestic vehicle sector and include certain tax credits and a reduction of Brazil's industrialised product tax, or IPI, subject to requirements. The benefits would be applied to qualified importers as well.  Brazilian car sales have dropped this year following slower economic growth. A reduction in IPI tax had been used earlier this year to stimulate Brazilain car sales, although sales dropped again in September when the incentives were withdrawn.


According to tax specialist Ernst & Young, to qualify for the tax benefits, companies are required to comply with various requirements related to the production process, such as improving vehicle efficiency (such as consuming at least 12.08% less fuel), producing a minimum percentage of the vehicle’s manufacturing processes in Brazil and making investments in R&D, engineering and local suppliers.

In a press conference held earlier this month, Brazil's Trade and Industry Minister Fernando Pimentel said the government will offer tax incentives for companies that invest in science, technology and fuel efficiency. Moreover, the incentives aren't just for firms that manufacture in Brazil; car importers can also benefit if they meet the rules, he said.
 
But there are questions about how the programme will be applied and whether it would make sense for global carmakers investing in Brazil. The local research and development requirements for a carmaker such as Volkwagen, for example, might not be interesting considering its investment elsewhere in the world, according to one source at a Brazilian-based automotive logistics provider. The five-year timescale of the benefits might also not be long enough to encourage more local investment in Brazil. 
 Neverthless, since the new plan has been announced, JAC has said it will resume its project to install an assembly plant in Camaçari, Bahia. Fellow Chinese carmaker Chery, which invested in a unit in Jacarei, Sao Paulo, also finds itself in a favorable position with regards to the new programme, according to market analyst Datamonitor. The impact of the incentives should be felt throughout the entire production line of the automobile industry in Brazil, Pimentel said during the press conference.

Read the full report from the recent Automotive Logistics South America conference in the current issues of Automotive Logistics magazine and Finished Vehicle Logistics magazine.

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