The government has just published in an extraordinary edition of the Official Gazette a decree reducing the IPI rate by 25% on almost all products subject to the federal tax. For automobiles, however, the reduction was smaller, at 18.5%. Cigarettes and other tobacco-related products did not receive a reduction, but alcoholic beverages, contrary to what the government itself had been suggesting, also had their rates reduced by 25%. Read the full decree.
“The measure reduces the IPI rates applicable to automobiles, so-called “white goods” appliances, such as refrigerators, freezers, washing machines and dryers, and other industrialized products,” highlights a note released by Planalto.
The estimated fiscal impact was R$19.5 billion for 2022, rising to R$20.9 billion in 2023 and R$22.5 billion the following year. “Since this is an extra-fiscal tax, of a regulatory nature, the presentation of compensation measures is waived, as authorized by the Fiscal Responsibility Law,” highlights the Palace.
According to the Ministry of Economy, the proportional reduction in IPI rates enables increased productivity, reduced inter-sector tax asymmetry and greater efficiency in the use of productive resources. “This tax reduction occurs after the increase in federal tax collection observed throughout last year, and will not affect the solvency of the public debt or the federal government's commitment to fiscal consolidation,” concludes the note from Paulo Guedes' team.
According to Planalto, the increase in revenue shows that there is sufficient fiscal space to make possible “the reduction currently being implemented, which seeks to encourage national industry and commerce, revive the economy and generate jobs”. The decree will come into effect immediately.
The measure comes at a time of rising inflation and rising costs for an already struggling industrial sector. It may help make products cheaper, but it will hardly be to the same extent as the cuts, since companies tend to rebuild their profit margins. In an election year and with doubts about the pace of economic activity, the measure also aims to improve President Jair Bolsonaro's popularity, even if the authorities deny it.
After Carnival, the government should start announcing other measures, such as the release of FGTS and credit support for smaller companies.