Brazil's Evolving Tax Policy for Electric Vehicles

The Brazilian government is set to announce significant changes to the import tariffs for electric and hybrid vehicles later this year. This long-awaited policy shift aims to stimulate national production of electrified vehicles and reduce the dependency on imported cars. By implementing a quota system, the government intends to balance the entry of imported vehicles while fostering local manufacturing.

Current Scenario and Impending Changes:

At present, electric vehicles, including imports, are exempt from the IPI (Tax on Industrialized Products). Hybrid vehicles enjoy reduced taxation based on their energy efficiency. However, this exemption has cost the Brazilian public coffers approximately R$ 1.2 billion, mainly benefiting high-end electric and hybrid vehicle consumers. To address this, the government plans to introduce a progressive taxation policy, which could be effective from December this year.

Proposed Quota System:

The new policy will introduce a quota system for importing electric and hybrid vehicles. The exact details of these quotas—whether they will be by brand or model—remain to be clarified. The aim is to gradually increase the IPI rate up to a ceiling of 35% and to reduce import quotas year by year until their elimination in 2026.

For example, in the first year, if the quota is set at 5,000 vehicles with a 10% IPI rate, a brand can import up to 5,000 vehicles without incurring the tax. Any additional units beyond this quota will be taxed at 10%. In subsequent years, the quotas will decrease, and the IPI rates will increase, following a similar logic. Notably, domestically produced electric and hybrid vehicles will be exempt from these quotas and rates.

Impact on the Automotive Industry:

This policy change is expected to significantly impact the automotive market in Brazil. Currently, only a few companies, such as BYD, GWM, Stellantis, and Toyota, have plans to produce electrified vehicles locally starting in 2024. Other major brands like GM and Volkswagen are expected to commence local production from 2026 or 2027. The increased taxation on imported electric vehicles may temporarily boost the sales of gasoline or ethanol-powered vehicles, leading to a higher volume of automotive parts imports.

Preparing for the Changes

To navigate these upcoming changes, companies can take several proactive steps:

1) Assess Current Inventory and Import Plans:

• Review your current stock of electric and hybrid vehicles and assess future import needs in light of the upcoming quota restrictions and tax increases.

2) Stay Informed and Compliant:

• Stay ahead of policy updates and ensure compliance with new regulations. Regularly consult with CATTS’ trade experts to navigate the evolving regulatory landscape effectively.

3) Strengthen Local Partnerships:

• Build and strengthen relationships with local manufacturers and suppliers. This can help mitigate the impact of import restrictions and take advantage of the benefits offered to domestically produced vehicles.

4) CATTS Expert Support:

• Partner with trade consulting firms like CATTS to receive tailored advice and support. Our team can assist with catalog management, navigating complex procedures, and ensuring your business remains compliant and efficient.

In Conclusion

The Brazilian government's new policy on electric vehicle taxation marks a significant shift towards encouraging local production. While it poses challenges for importers, it also offers opportunities for growth within the domestic market. Stay informed and prepared with CATTS' expert guidance, ensuring your business remains compliant and competitive.