Brazil's government announced Monday that it will extend the tax relief for automakers and other industrial manufacturers in order to help reinvigorate the economy.
Finance minister Guido Mantega said that Brazil's current temporary tax breaks on industrial production will be extended for three more months. In addition to automakers, these provisions also benefit producers of home appliances and construction materials.
Brazil's IPI industrial taxes were initially reduced in December and the lower rates were to extend through April 1. In March it was announced that the tax breaks would be extended through June 30. The 20 percent tax break for automakers is credited for helping to boost Brazil's car sales, as it has allowed producers to lower prices. Auto showroom prices have come down by about 10 percent since the implementation of the IPI tax reduction. The latest sales figures for Brazil's motor vehicles show an increase of 5.4 percent in May 2009 from April and a rise of 2.1 percent from May 2008.
After three months, the government will raise the IPI taxes for automakers and appliance makers, but will keep them below pre-crisis levels. Construction material producers will continue to receive IPI tax breaks for another six months.
Only two weeks ago, Mr. Mantega announced that the IPI tax relief would not be extended past June 30, but Brazil's President Lula said a few days later that he would consider prolonging this benefit, and would perhaps even make it permanent. Also earlier this month, data released by the Brazilian Institute of Geography and Statistics showed Brazil's GDP fell by 1.8 percent during the first quarter of this year compared to a year ago. However, this drop was far less severe than the 3.6 percent contraction Brazil's economy underwent in the fourth quarter of last year. Brazil still expects to have a slightly negative growth rate for the year (-0.8 percent).