Government prepares decree on IPI cut in response to Alexandre de Moraes’ decision

Minister of the STF prohibited reducing tax on products made in the Manaus Free Trade Zone

O Jair Bolsonaro government prepares the edition of a new decree dealing with the reduction of the Tax on Industrialized Products (IPI), in response to a decision by Minister Alexandre de Moraes, of the Federal Supreme Court (STF). He prohibited the reduction of this tax for products manufactured in Manaus Free Zone.

The government made a linear reduction of 25% in the IPI at the beginning of this year. Then, it reduced the tax by another 10% (with the exception of products manufactured in the Manaus Free Trade Zone). The IPI zero in the Free Zone is the main attraction of the hub — therefore, a lower tax in other areas reduces the competitiveness of the place.

Moraes then suspended the effects of Bolsonaro’s decrees on any product made in Manaus. For the government, this created legal uncertainty, because there are products with little production in the region. The Executive also considers Morares’ decision difficult to execute.

Therefore, it will now issue a decree to specify that the IPI is reduced by 35% for about 4 thousand products made outside Manaus. The region has a tradition in the production of motorcycles, televisions, refrigerators and soda syrup.

The government will also try to pass a bill that would exempt foreigners from paying income tax on gains from investments in private bonds, back from the parliamentary recess in August.

An old wish of the Minister of Economy, Paulo Guedes, the proposal has already been approved in the Chamber and is under discussion in the Senate. The Executive believes that this will have the potential to attract investment to the productive sector.

Currently, foreign investors pay a 15% tax on capital gains on securities issued by companies, but are exempt from the tax for investments in the Brazilian stock market and public debt.

Brazilians pay a 15% to 22.5% income tax rate on corporate bond returns, depending on the redemption period.

Source: O Globo Agency