Government measure reduces taxes to up to 16% from 35%

06/30/2022

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The cars produced in Brazil may have lower local sourcing rate. The country is still far from the electrification drive underway in developed countries, and a recent measure of the federal government has accelerated the decline of manufacturing. A resolution from the executive management committee of the Foreign Trade Chamber reduced the import tax rates to 16%-18% from 35% for vehicles that enter the country entirely unassembled or partially assembled.

This is the first time that the Brazilian government stimulates the local assembly of vehicles with parts from abroad, known in the industry by the acronym CKD. Until now, the stimulus to local sourcing prevailed. Past government programs have granted many incentives in exchange for a minimum local content. Today, although there is no rule, in the major automakers the average local sourcing rate is 70%.

Audi has already taken advantage of the federal measure to produce two car models with 100% of the parts brought from its plant in Hungary, thus resuming the operation of an assembly line in Paraná, which had been shut down more than a year ago.

The Camex resolution is recent. It was published in the Daily Gazette on March 2. The tax break is valid for new cars and light commercial vehicles up to 1,500 kilos without equivalent domestic production. The resolution has a two-year term.

The tax drops to 18% on semi knocked-down (SKD) cars. That is, what arrives in the country in the form of sets of parts already assembled abroad. The government will grant a lower tax reduction, to 16%, for completely knocked-down vehicles (CKD). In this case, the assembly requires a greater amount of processes and local labor.

Audi will use the SKD benefit. Sets of components of the new generations of two models — Q3 and Q3 Sportback — will arrive at the Paranaguá port for assembly at Volkswagen’s plant in São José dos Pinhais, Paraná. The company announced on Wednesday an investment of R$100 million to modernize the line with new machinery. A total of 200 workers will be hired in the coming months until the planned capacity of 4,000 vehicles per year is reached.

This is a timid plan when compared to the sector’s average and to what Audi itself has already done in Brazil in its first two attempts to have an industrial activity in the country, in 1999 and 2015. In both, the German automaker was attracted by tax break programs — the so-called automotive regime and Inovar-Auto, respectively. When it decided to stop the activity for the second time, in early 2020, Audi’s management team pointed to the frustration of not having received back tax credits owed by the federal government.

These credits refer to a measure taken by the Brazilian government in 2012, which instituted the collection of 30 percentage points more IPI on cars imported by companies without plants in Brazil. When four luxury brands — Audi, Mercedes-Benz, BMW and Land Rover — unveiled plans to build factories in the country, there was a promise, never kept, to return the overcharged Industrialized Products Tax (IPI).

The total of these credits amounts to R$300 million, according to the company. It is estimated that Audi is owed more than R$200 million, although the company does not reveal precise figures. Mercedes gave up the operation at the end of 2019 and sold its factory to China’s Great Wall.

Daniel Rojas — Foto: Divulgação

According to the CEO of Audi in Brazil, Daniel Rojas, the model adopted this time, with the assembly of imported semi-knocked down kits, is used around the world and is “suitable for production in low volumes.”

The company may, however, expand production and even decide to make another model locally if tax credits are returned, he said. The executive points out what led the assembler to decide for the SKD system instead of importing complete vehicles: “We have an agreement with the government to produce until 2030, we have benefits, and we have a local production commitment with our customers.”

According to the executive, in conversations with dealers, it is noticeable that the brand’s customer values the company’s industrial activity in the country. “The Brazilian market is one of the largest in the world; a reference in Latin America,” he highlights.

Although it has chosen to produce combustion models in Brazil, Audi is among the brands that most offer electric cars in the country, all imported. According to Mr. Rojas, 8% of the brand’s sales this year will be of fully electric or hybrid models. This represents four times more than the market average.

The German brand already sells four electric models in the country and announced on Wednesday the arrival, soon, of two more in the hybrid version: Q5 and Q5 Sportback. The company also plans to invest R$20 million in the expansion of recharging points in its dealer network.

In the future, electrification will be present in the entire Audi line. The company’s global plan foresees that by 2033, the brand’s worldwide production will be restricted to hybrid or fully electric models. The effort paves the way for a bolder goal of achieving decarbonization by 2050.

*By Marli Olmos — São Paulo

Source: Valor International

https://valorinternational.globo.com/