Government prepares package of measures to strengthen national industry
- July 11, 2022
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Fostering investment and increasing competitiveness are among the objectives
The Jair Bolsonaro (PL) government is preparing a series of measures to try to strengthen the national industry. The menu includes a decree to encourage the renovation of machines in the industrial park, through a tax benefit, and two MPs (provisional measures) to simplify the payment of taxes and encourage the domestic manufacture of semiconductors.
With the objective of promoting investment in the very short term, the decree determines that a company can make all the reduction of the depreciation of new machinery and equipment in the IR (income tax) in the first year after the acquisition of the asset.
Today, the term varies from five to 20 years depending on the segment. In the case of IT and technology goods, for example, the minimum time is valid.
By deducting the depreciation of assets in advance, there is a change in the cash flow of companies. With this, the government intends to encourage the renovation of machinery to increase industrial productivity.
The idea is that the measure will be valid for five years, but it is still under discussion whether it will be valid from this or next year. If it were in effect in 2022, the estimated impact from April to December would be BRL 19 billion. The decree is expected to come out in up to two months, according to government sources.
In their understanding, it is not a tax exemption and there would be no restrictions in the electoral legislation for the publication of the measure during the campaign period. Even so, a group involving the Attorney General’s Office (AGU) and the Civil House has carried out a more rigorous analysis on the matter.
The trade facilitation MP proposes the suspension of tax payments along the production chain, concentrating expenditure on the last link. This would avoid the accumulation of tax credits and residues with a view to increasing the competitiveness of Brazilian industry, in the government’s assessment.
Today, if a company takes more than three years to use the credits, international audits indicate the need to internalize them in the production cost, increasing the final value of the product.
With the measure, a reduction in tax compliance costs is also expected. The automobile, machinery and equipment and electronics sector would be the main beneficiaries of the MP aimed at the long-chain industry.
The proposal will be voluntary, considering that, in the operation of the domestic market, the company that opted for the differentiated regime assumes the entire cost of the chain, being responsible for the disbursement and payment of the entire tax margin.
The government’s menu also includes a semiconductor MP to boost domestic production of these components, which have been experiencing a global supply problem since the pandemic and intensified with the Ukrainian War.
The plan is aimed at the private sector. The country currently has two companies with the most significant presence in the sector and the state-owned Ceitec (National Center for Advanced Electronic Technology) focused on semiconductors, but the company is in the process of liquidation.
The measure aims to put into practice a plan designed with six pillars. The first axis is tax relief for production chains starting next year. According to government sources, the impact of the tax waiver is still being calculated.
The plan also provides support for research, development and innovation initiatives, as well as the qualification of the workforce. Partnerships with universities are planned, in addition to facilitating the issuance of visas for foreigners and mobility of workers and other measures.
Other pillars are support for private investments, including lines of financing from the BNDES (National Bank for Economic and Social Development), simplification of the import and export process, which involves a review of Padis (Program to Support Technological Development of the Semiconductor Industry and Displays), and the promotion of exports by heating up national demand so that there is global scale.