The Brazilian government must have borrowed several chapters from Vladimir Putin’s playbook on industrial policy. Reuters has it that the Brazilians are using the same strong-arm tactic as Russia: Invest heavily in-country and steep taxes on imported cars will go away. Don’t invest in Brazil and kiss your bunda adeus.
Brazil’s government had hiked the sales tax on motor vehicles from 7 percent to 25 percent (depending on horsepower) to between 37 percent and 55 percent. This does not apply to cars with at least 65 percent domestic content. The law, originally planned to go into effect in October, was delayed by the supreme court until December, ruling that a law needs 90 days to take effect.
Now Brazilian media reports that foreign automakers committed to installing factories in Brazil can also get around the tax, even on cars that are imported.
Many carmakers, from China’s JAC Motors to luxury brands BMW and Land Rover have discussed or announced new factories in Brazil. Analysts see Brazil to become the world’s third largest car market by 2015, kicking Japan off the podium. Speaking of Japan, its government plans to report Brazil to the WTO, Brazilian press says (via Bloomberg).