The government of Brazil has adopted new tax breaks to encourage auto companies to invest in science, technology and fuel efficiency; the auto industry accounts for approximately 20% of the country’s economic output. Brazil is currently the fourth largest auto market in the world, but is seventh in terms of production, and the incentive is meant to reduce the difference. Temporary tax breaks introduced earlier in the year caused a surge in sales in August, but September saw a decline of 31%. The new tax break is designed to provide a long-term framework that will spur the country’s auto industry to invest more money.
Finance Minister Guido Mantega said that auto manufacturers are already poised to invest US$22 billion in the country over the next three years; Mantega also emphasized his desire for that amount to increase. All of the world’s top auto makers are already doing business in Brazil: Fiat, the top-selling car maker in Brazil in September, Volkswagen, GM, Ford Motor Co., and Renault SA. China’s JAC Motors will break ground on a US$450 million production plant in November, and will start rolling out vehicles by the end of 2015.
The companies are encouraged by the potential economic upturn in Brazil, the low unemployment rate, rising income, and a growth of 4% or more over the medium term. Trade and Industry Minister Fernando Pimentel said, “The impact of the incentives should be felt throughout the entire production line of the automobile industry in Brazil…local content will increase as a result of investments in research and development.” He added that the government does not expect the new rules to be challenged by other countries at the World Trade Organization because they are “perfectly within the rules of the WTO.” (October 5, 2012)