By on November 12, 2011

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).

 

 

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8 Comments on “How To Avoid Brazilian Car Taxes: Build A Factory. Or A Few...”


  • avatar
    korvetkeith

    With such ingenious policies, I expect Brazil’s economic boom to continue in perpetuity.

  • avatar
    carbiz

    Japan is going to the WTO? Thanks, I just spit my coffee out all over my desk. That’s rich!
    Brazil is many things, but an outsider has to ask why does Brazil have such a successful, home grown auto industry, with their own design and engineering centers. 100 years ago, there were hundreds of auto manufacturers in nearly every country in the world. By the 1960s, most of them were gone. The auto industrial powerhouses, with their commensurate patents and spin off design and engineering jobs, became concentrated in 5 power centers: Japan, the U.S., Germany and to a lesser extent France and Italy. To get back in the game, both Canada (AutoPact) and Brazil had to enact regulations to ‘encourage’ foreign car companies to build what they sell.
    Proponents of Free Trade, Globalization, and freedom of choice need to take a deep breath, sit back and look at what countries in the world of today are getting ahead, and which ones are stagnating or backsliding. (Hint: only the ones with a healthy auto industry are on the A-list. Brazil and China are growing at breakneck speed, and neither is getting their by giving away their auto industry.
    Ford has been in Brazil since 1919. GM since 1925. Toyota arrived in 1958. Honda in 1976. GM’s market share is nearly 20%; Ford’s around 9. Honda and Toyota languish at the back of the pack, with negligible sales numbers. Nissan is riding on Renault’s coat tails in trying to crack what will soon be the 3rd largest world market.
    Maybe if Japan Inc had spent less time attacking the North American market in the past 40 years and more time focusing on South America, they wouldn’t today be also-rans and run crying to the WTO just because Brazil isn’t going to take it up the a$$ like North America did.

    • 0 avatar
      ihatetrees

      If Brazil thinks it’s a good idea for its citizens to pay 2x the cost for basic transportation, more power to them. Or, perhaps Brazil thinks her slum bound poor shouldn’t be able to choose when and where to travel.

    • 0 avatar
      eldard

      And why would have the Japs concentrated on LatAm back then? That’s like flushing your marketing budget down the toilet. Leave it to Gee M. Which can hardly sell cars outside of the Americas. And China. Hardly sophisticated markets.

  • avatar

    Not sure, but it seems to make economical sense to produce cars for the third-largest car market in the world as near as possible to the prospective customers. There even might be the option to export stuff.

  • avatar
    TrailerTrash

    Nothing new here to me.
    We used to try to sell our oral care products….toothpaste, mouthwash, etc, in Brazil many years ago.
    And after fighting the import taxes and duties, it became very clear that IF we wanted to sell in Brazil, we had to buld a factory and produce the product there.
    That was it. Had to be done.
    It was a terrible argument within the company, but we did it and against my wishes.
    I would rather the market gone to hell than infuse the money that we eventually NEVER got back…not even close.

  • avatar
    Magnusmaster

    Brazil did this for years. They are very nationalistic: not only must you set up a factory there but also every employee, even the ones higher up, must be Brazilian. Unlike us Argentinians, who must bend over to foreign corporations because we can’t make them invest in our country otherwise, no matter how much Cristina tries (only Honda set up here recently, and it’s a tiny factory making mostly CKD cars), in Brazil they have a lot of negotiating power, thanks to their huge size.

    Hopefully Hyundai, Kia or Mitsubishi sets up here in Argentina so that they can sell some decent cars without being screwed by our government, but that’s is almost impossible.

  • avatar
    djn

    Brazil closed its economy to all sorts of imports in the late 50′s. The results were antiquated industries that could not complete globally. Brazil continued to be an exporter of commodities and suffer from hyperinflation and bloated government. That all changed in 94 when then free-market oriented administration of President Fernando Henrique Cardoso introduced the Real plan. Sound money, opening to imports. Inflation dropped, imports rose and the the economy took off. Brazilian manufactures were now able to import state of the art technology, machine tools, computer systems at world market prices. There was a huge increase in quality of Brazilian manufactured products.

    In recent years they are moving backwards and are now run by their second government of communists under the guise of the “Labor Party”.

    Result, a Toyota corolla is almost 2x plus the cost here. Brazil has a huge potential internal market, good entreprenureship and abundant resources. What they suffer from is decades of statist government under military followed by similarly statist socialist governments.


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