Brazil unveils funding and tax cuts measures to boost automotive industry and lower vehicle prices

Brazil's government has revealed a host of initiatives aimed at invigorating the domestic industry, particularly focusing on the automotive sector, in an effort to update its ageing fleet of vehicles and make cars more affordable for consumers.

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These measures, which encompass tax cuts and increased state-backed funding, were announced following a meeting between government officials and business leaders in Brasilia, the nation’s capital. The talks centred around strategic plans to re-industrialise Brazil, the largest economy in Latin America.

Vice President Geraldo Alckmin, who also holds the position of minister of development, industry, and trade under President Luiz Inacio Lula da Silva, elaborated that the state development bank BNDES will offer 4 billion reais ($799.47 million) in financing for local industry in dollar terms. Moreover, the federal taxes applied to certain cars will be decreased.

Alckmin emphasised that the government has a responsibility to lower the “Brazil Cost” – the term used to describe the high cost of doing business in the country. He observed that foreign exchange rates are now competitive and interest rate futures are gradually decreasing.

Acknowledging the need for support, he said, “Our fleet is getting old, and the industry is facing a hard time due to lack of credit.” The Vice President then explained that in addition to the extra credit offered by BNDES to the entire industry, the government plans to reduce the PIS and COFINS federal taxes on vehicles priced up to 120,000 reais. The goal is to decrease their end price and stimulate sales.

The proposed discounts could reach up to 10.79%. Consequently, the head of the automaker’s association Anfavea estimated that Brazil will likely be able to sell vehicles below the significant threshold of 60,000 reais.

“The smaller and more affordable the car, the greater the tax cuts,” said Alckmin, stressing that the new government stimulus will prioritise low-polluting vehicles. Compact cars such as the Renault Kwid and the Fiat Mobi, currently amongst the least expensive in Brazil, both retail above the 60,000-real price point, but could become more affordable under these new measures.

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