Problems relating to Trade and Investment on Brazil
5. Regulations on parts industrial policy |
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Issue |
Issue details |
Requests |
Reference |
| (1) Tax Incentives Unfavourable to Parts Manufacturers | - While the electronic parts market expands from Audio-Video products to IT, white goods, and cars, GOB restricts the various incentive measures by dissecting them by product sector and by state. The restriction jeopardises the viability of electronic parts manufacturing business, in the environment where the market size is too small to maximise the economy of scale in production. Conversely, GOB affords maximum preferential measures to set manufacturers on their import of materials and component parts, making business of parts manufacturers' no longer viable. Grant of tax incentive lacks consistency at times so that as of today, in regard to television receivers, GOB grants special incentives on local assembly of the flat panel. In addition to the complex tax scheme, changes take place all the time, exposing business operation to legal risks each time. - In the absence of the supply base of parts industry domestically in Brazil, the set manufacturers have no alternative but to rely upon imports for their parts procurement. Since GOB grants various tax benefits on the set manufacturers' parts import, the parts manufacturers' effort to sell their parts in the domestic market is almost impossible due to the difference in the tax benefit between the set manufacturers and the parts manufacturers. The tax benefits in the foregoing include: (1) Lei Hanan: 100% tax exemption of ICMS (Tax on the Circulation of Goods and Services of 17%) in the Manaus FTZ; (2) Lei da Informatica: ICMS is reduced to 7% from 17%, 100% Tax Exemption of IPI (Industrial Products Tax of 10-20%) (3) RECOF: GOB grants Priority Customs Clearance to Information Telecommunication Industry (ITI), whose payment may be suspended for import duty and all other taxes, pending product shipment. At times when high rates of effective duty prevail, ITI benefits from the eased cash flow. (4) Drawback: GOB grants tax exemption to manufacturers' direct import of parts for incorporation into export products on account of import duty, Industrial Product Tax (IPI), Tax on the Circulation of Products and Services (ICMS), etc. (5) Regime Automotivo GOB grants 40% exemption of I..I.. (import duty) for automotive sector, on conditions that sales to automotive industry must be 50% or more of the total sales, aside from investment into manufacture. These conditions are impossible to clear for most electronic parts manufacturers. (6) Moreover, opening of new business with car manufacturers has become almost impossible in substance, since all intermediary taxes in distribution are exempted as regards the automotive industry. (Law No. 10485/11.2003)GOB effectively bans import by making it compulsory for the local enterprises to manufacture domestically the products in the category of the PPB (Processo Produtivo Basico = Basic Production Process) Scheme applied for and acquired by the local enterprises (RC, LNB). However, set manufacturers are authorised to import the new products, on an exemption.Viable operation of parts manufacturing business has become more and more difficult, due to the compartmentalised restrictions by product sector and by state, which have further reduced the market scale for parts manufacturers, despite the spread of general electronic parts market from AV Equipment to IT / White Goods / Cars. Moreover, the grant of various incentives for "Parts" manufacturers is subject to investment into manufacturing, while to "Set" manufacturers, the maximum incentives are available on import of parts and materials. |
- GOB lacks consistency in its grant of tax preferential measures. As for television receivers, Amazon State provides special incentive measures on the local panel display assembly operation. - To begin with the taxation system is complex, while changes are daily affairs. Enterprises in Brazil must face the legal risks all the time. |
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| (2) Irrational Expansion in the Scope of Localised Parts Procure- ment to Qualify for Manaus Production Incentives | - GOB has expanded the scope of localised parts procurement to qualify for acquisition of incentives for Manaus production. Since 2013, GOB has promoted expansion of the local production of electric parts. However, only a few parts manufacturers operate in Manaus and many of their products are unable to compete in cost and quality against imports, pushing up as a result sales prices of the products manufactured in Brazil, or else makes profitable operation difficult. | - It is requested that GOB: -- fosters local parts manufacturers, -- beefs up their competitive edge by creation of an environment that facilitates entry of foreign funded enterprises, etc. |
- PPB (Processo Produtivo Basico = Basic Production Process) for each Product Category |
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