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Brazil to Reduce Vehicle Tax Breaks

January 07, 2014

The Brazilian government stated it will gradually roll back tax breaks on cars 2014, amid worries from producers that higher duties could hit sales in the South American country, according to a Reuters report.

The government had previously announced it planned to return the industrial products tax, known as IPI, charged on cars and other products to the normal level as a way to make up for the billions of dollars in lost revenue that severely deteriorated Brazil's finances this year, according to the report. However, the government decided to raise the IPI tax on basic passenger cars to 3 percent from 2 percent starting in January, instead of an immediate return to the original rate of 7 percent as expected by many analysts.

In 2012, the government temporarily lowered the IPI tax on cars, furniture and home appliances in an attempt to jump start an economy that has struggled to grow in the past three years, according to the Reuters report.

Automakers in Brazil are worried that higher taxes and new, obligatory safety standards will increase the value of cars and reduce sales in the world's fourth largest auto market, according to the report. Auto sales in Brazil were on track to shrink in 2013 for the first time in a decade, as credit gets tighter and the government gradually winds down its stimulus. Italy's Fiat SpA, Germany's Volkswagen and U.S.-based General Motors and Ford sell more than 70 percent of the new cars in Brazil.

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