Analysis: Brazil’s car tax breaks enter a new chapter

The sustainable-version certification is tied to the Sustainable Car program, launched in July 2025. The initiative, which exempted a list of models from the Industrialized Products Tax (IPI), was created with an environmental goal in mind. It granted tax exemptions to cars with low pollutant emissions and a high proportion of recyclable materials. In practice, however, it was designed to boost sales at a time when the market was sluggish.

lthough electric cars also produce low emissions, they were excluded because the program was limited to vehicles manufactured in Brazil. No electric cars were being produced in the country at the time, and under the program’s criteria, even models that are now imported in semi-knockdown (SKD) form for final finishing in Brazil remain ineligible. In other words, all Chinese models were excluded. The measure prompted complaints at the time from EV brand representatives.

The program initially covered a limited number of models—mostly smaller, lower-priced cars. Following lobbying efforts by automakers in Brasília, the list was subsequently expanded to include additional configurations and models launched after the program was created.

The list of eligible vehicles now includes 14 versions of the Chevrolet Onix, Fiat Mobi, Fiat Argo, Citroën C3, Hyundai HB20, Renault Kwid, Volkswagen Polo, and Volkswagen Tera. With the IPI exemption, these models—whose entry-level versions are priced at around R$70,000, although higher-end trims can cost considerably more—received discounts ranging from R$3,000 to as much as R$13,000.

The addition of new models was even announced by Geraldo Alckmin, the vice president and then head of the MDIC, on his Facebook account. Alckmin is one of the program’s strongest supporters. After its launch, he began visiting car dealerships on Saturdays to monitor sales performance.

The program did, in fact, attract consumers. According to the National Association of Vehicle Manufacturers (Anfavea), sales of eligible models rose 28.9% from January to September. Over the same period, the market for passenger cars and light commercial vehicles grew 16.6%.

The market expansion prompted Anfavea to revise its full-year projections. In 2026, sales of new vehicles are expected to exceed 3 million units for the first time in 14 years.

Car rental companies benefited from the program as well, and to a greater extent than end consumers. Anfavea data show that of the 374,000 eligible vehicles sold from January to September, 277,000 were sold through direct sales and 97,000 through retail channels.

Over the years, the automotive industry’s tax system has been shaped by rules tailored to specific types of vehicles. These rules have also almost invariably been followed by expansions of the lists of eligible products. In some cases, automakers have even adapted product development and launch plans to ensure their vehicles qualify.

The best-known example was the economy car program. It was launched in 1993 after then-President Itamar Franco asked Volkswagen executives to bring back the Beetle. In return, he would grant the model an IPI exemption.

Volkswagen promptly agreed to the president’s request. Itamar Franco, an honored guest at the relaunch celebration, rode in a convertible Beetle, echoing Juscelino Kubitschek’s appearance at the inauguration of Volkswagen’s factory in São Bernardo do Campo in 1959.

What followed, however, was an intense, prolonged lobbying effort by all automakers to have their own models included in the tax benefit. Legislation was then introduced for economy cars, exempting not only the Beetle but also vehicles equipped with 1.0-liter engines from the IPI.

In the next phase, automakers adapted their new models to fit the category, eventually expanding the list of IPI-exempt vehicles far beyond the original idea of a bare-bones, no-frills car. The industry then came up with the 1.0-liter turbo engine, demonstrating that when tax breaks are at stake, automakers can learn—and do—just about anything.