Federal manufacturing indirect tax IPI discounted to curb inflation and help post-COVID
Brazil has discounted by 25% its federal tax on manufacturing, IPI, Imposto sobre Produtos Industrializados. For a number of automobile vehicles, the IPI rates are reduced by 18.5%. This came into effect on 25 February 2022. IPT is set according the commodity codes and varies – the average rate is 10%.
It will apply to most manufactured supplies – tobacco is excluded. Aside from temporary relief from the global inflation spike, it is aimed at boosting the manufacturing sector following the pandemic.
The cut will reportedly costs Real 20billion (approx $4 billion). Brazil’s annual inflation rate was recorded at 10.4% in January, above forecast.
A long term Brazil VAT reform is being considered in the Senate. Get our global VAT and GST free news emails, sign-up here.
Brazil – blend of federal, state and municipal taxes
- COFINS, Contribuição Social para o Financiamento da Seguridade Social – the federal tax contribution to the Social Security Financing paid on company revenues. The rate can be up to 7.6% on monthly revenue depending on the activities of the company.
- PIS, Programa de Integração Social, at a rate 1.65% with COFINS together comprise the social contributions levy applicable to transactions.
- IPI, Imposto sobre Produtos Industrializados – the federal tax on manufactured goods. The ad valorem rate is set by HS product code and can be up to 300%. The average rate is 10%.
Originally, COFINS and PIS were business turnover taxes. They have been partially reformed for some businesses at 3.65% and 9.25% rates.
- 26 States
- ICMS, Imposto sobre Operações Relativas à Circulação de Mercadorias e Serviços de Transporte Interestadual e Intermunicipal e de Comunicações – the tax which applies to the movement of goods, transportation, communication services and other general supplies of goods. The current tax level is between 7% and 25%. A major challenge of ICMS is that it is not levied on the destination basis like most VAT regimes; instead on the origin basis.
- ISS, Imposto sobre Serviços – the municipal tax on the provision of services. The rate ranges to up to 5%.