How To Avoid Brazilian Car Taxes: Build A Factory. Or A Few
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).
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
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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.
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.
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.
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.