BRASILIA – In March, Brazil will ease a tax increase charged on imported cars for automakers investing to build local assembly plants, the government's chief industrial policy maker said.
The surcharge of as much as 30 percent was implemented last month, amid protests from Chinese automakers, to stem a surge of imported cars being sold in Latin America's largest economy.
While the details of how the roll back will be applied have not been finalized, companies that may benefit include Anhui Jianghuai Automobile Group from China and BMW, both of which have announced plans to invest in Brazil.
"The tax was used as an emergency brake, now we will lower it," Mauro Borges Lemos, head of the Brazilian Industrial Development Agency, said in an interview in Brasilia Thursday. "It's an incentive to speed up investments."
The measure is part of a broader effort to boost the competitiveness of Brazil's manufacturers, which have lost share in a robust consumer market as a 35 percent rally in the real since the end of 2008 lowers the cost of imports, particularly from China.
Car imports surged 30 percent last year, accounting for 23.6 percent of vehicles licensed compared with 18.8 percent in 2010.
BMW and Anhui Jianghuai Automobile Group could not be reached for comment.
Later in the year, the government will announce plans to cut the so-called IPI tax over the next four years, beginning in 2013, giving larger breaks for vehicles that meet higher fuel efficiency and safety standards and containing a bigger share of locally-made parts.
"Our technology is below world standards," Lemos said. "What we want is modernization."
Carmakers plan to invest an estimated 30 billion reais ($17 billion) over the next three to five years, said Lemos, the main industrial policy adviser to Trade Minister Fernando Pimentel.
As the world's fifth-biggest car market, Brazil is a main target for Chinese automakers looking to expand overseas. JAC Motors plans to build a $600 million factory in the northeastern state of Bahia this year as part of a plan to double annual sales in Brazil by 2015.
BMW's representative in Brazil, Henning Dornbusch, said last month that the world's biggest maker of luxury cars may build a plant here if the government eases enforcement of the tax increase. The company placed on hold its expansion plans last year after the tax increase was announced.
President Dilma Rousseff's decision to protect local carmakers surprised her country's trade partners. Chery Automobile from China challenged the measure in court, while Japan's government complained to the Geneva-based World Trade Organization that the measure was protectionist.
Rousseff supports the tax breaks though she has not signed off on final details of how they will be applied, Lemos said.
"The framework is in place," he added.