The government's answer to the economic crisis? A tax holiday.
SAO PAULO — When the international crisis struck credit markets here last fall, car sales in Brazil tanked: a worrisome development in a country where the automotive industry is a vital source of industrial employment. Fourth-quarter new car registrations were just under 464,000, which was 112,000 less than the fourth quarter of the previous year.
Yet in the first quarter of 2009, everything turned around, with sales spiking to 527,000, beating out even the first quarter of 2008, when Brazil’s economy was booming.
Magic trick? Try tax holiday. On Dec. 11, the Brazilian government slashed the IPI, a tax on industrialized products: For cars with 1.0 liter engines, the 7 percent tax disappeared completely, with the savings largely passed along to the consumers. Larger vehicles taxed at higher rates got partial cuts. (Non-driving smokers were out of luck, however: The IPI on cigarettes was raised to make up for part of the revenue loss.)
At places like Brazilwagen, a Volkswagen dealership in Sao Paulo’s upper-middle class Moema neighborhood, that has made for a pretty good year.
“Crisis? I don’t know anything about a crisis,” said Ricardo Cosme, as he showed Milton Souza and his parents how to operate the headlights and lock the trunk of their brand-new car, a charcoal gray Gol, on Friday evening.
Milton Souza's father, Enilton P. Souza, a retired metalworker, said it was the family’s first new car.
The tax incentive was a big part of the decision to buy now, Milton said. “I wanted a new car,” he said, “and with the IPI the price went down. It made a big difference.” He estimated he saved as much as 3,000 reais, about $1,500. (He probably didn’t, since the cost of the car was about 25,000 reais, but in economics, perceptions are often more important than reality.)
In the Fiat dealership across the street, the story was the same, according to salesman Gabriel Djehdian. He said the fourth quarter of 2008 was the worst in 10 years. A handful of his colleagues were laid off. The banks were far more reluctant to give credit. “If you had a letter of your name spelled wrong, they would reject you,” he said. The day the government announced the tax break, his colleagues scrambled to call all their customers who were in the midst of negotiations, offered them an instantly better price, and closed numerous deals. Sales have been booming since.
In part because of the effectiveness of the tax break, in April the government announced similar tax reductions for refrigerators, stoves and washing machines. Sales on those products have jumped 20 percent, according to Lourival Kicula, the president of Eletros, a trade organization that represents electronics and appliance manufacturers. He was citing virtually completed May numbers.
http://www.globalpost.com/dispatch/brazil/090530/brazilian-tax-holiday
