27 April 2012
Brazil Implements Measures to Promote Domestic Industry
The Brazilian government has taken a number of administrative and regulatory actions in recent months in an effort to fulfil the objectives of Brazil's broad-ranging industrial plan. Formally adopted in August 2011, the "Brasil Maior" (Bigger Brazil) plan is designed to defend domestic manufacturers against unfair foreign competition while at the same time increasing production and employment in Brazil. The plan comprises a number of measures in several areas of interest to manufacturers and exporters in Brazil and overseas, including new fiscal incentives and export financing options for Brazilian exports, a renewed focus on trade remedies to combat unfair imports, enhanced export promotion activities, and various other policies designed to encourage domestic industrial activity, investment and innovation.
Brazilian authorities were particularly active in April, announcing a set of new measures within the context of the Bigger Brazil plan that aim to stimulate the economy and foreign trade by (i) incentivising investment and innovation; (ii) enhancing export financing and guarantees; (iii) improving the competitiveness of the export sector; (iv) modifying Brazil's tariff relief mechanism and strengthening trade enforcement; (v) providing relief on payroll taxes and other tax benefits; (vi) establishing new special regimes for the automotive sector and other investments; and (vii) granting government procurement preferences to certain domestic products. A summary of these measures is provided below.
New Incentives for Investment and Innovation
The BNDES PSI Programme ("Programa BNDES de Sustenção do Investimento"), which is designed to boost the production, acquisition and export of fixed assets and promote technological innovation, has been extended through December 2013 with reduced interest rates, increased loan terms and a higher level of participation. The interest rate for purchasing buses and lorries has been reduced from 10 to 7.7 percent per year and the maximum amortisation period has been extended from 96 to 120 months. The interest rate on the acquisition of machinery and equipment has been lowered from 8.7 to 7.3 percent per year in the case of large companies and from 6.5 to 5.5 percent per year in the case of micro, small and medium-sized enterprises. In the export lines, loan terms have been extended from 24 to 36 months with the interest rate at nine percent per year for large companies and seven percent per year for SMEs.
In addition, Brazilian authorities have created a new PSI sub-programme aimed at supporting the technological sophistication of the Brazilian industrial sector. The so-called PSI Transforming Projects will provide financing at a five percent per year interest rate with loan terms of up to 144 months. This programme will finance investments that create technological and production capacity in knowledge and engineering areas, with a primary focus on the production of goods that are not yet manufactured in Brazil. For its part, PSI Innovation will provide financing at a unified rate of four percent per year. The amortisation periods included in the PSI Revitalise Programme, which supports companies in sectors adversely affected by the global economic downturn, have been increased from 18 to 24 months and new sectors have been added to this programme, including footwear (made of any material, other than leather); toys; furniture; processed plastic; technological equipment; goods made of wood, straw, cork, wicker; etc. Finally, PSI Progeren, which previously could only be accessed by SMEs, now also provides credit to large enterprises with a limit of R$50 million per economic group. Interest rates under this provision have been reduced from a range of 10.5 to 13 percent to a range of 9 to 11.5 percent per year.
Enhanced Export Financing and Guarantees
Available resources under PROEX, Brazil's export financing programme, have been increased from R$1.24 billion to R$3.1 billion. PROEX was created to support the export of goods and services, with the Bank of Brazil (Banco do Brasil) acting as the responsible party for the management of the programme. The programme is divided into three categories: (i) PROEX financing, which grants direct financing to a Brazilian exporter (supplier´s credit) or importer (buyer's credit) for a cash payment to the exporter; (ii) PROEX pre-shipment, which provides resources to support the manufacture or production of goods to be exported; and (iii) PROEX equalisation, which grants to the exporter similar interest rates to those used at the international level (that is, PROEX finances a share of the interest rate fee). Recent changes to this programme include (i) the equalisation of pre-shipment and post-shipment interest rates (i.e., national interest rates have been aligned with prevailing international rates); (ii) companies exporting through trading companies may now have their manufacturing processes financed with interest rates similar to prevailing international rates; and (iii) private banks can approve PROEX financing for operations of up to US$20 million without the need for approval from the Committee of Finance and Export Guarantee (COFIG).
Measures to Improve Export Competitiveness
Brazilian authorities have issued more flexible rules for export credit insurance. In addition, the minimum export share required for a company to be characterised as a "preponderantly exporting company" in accordance with the law (and thus benefit from the IPI, PIS and COFINS suspension on goods purchases for exportation) has been lowered from 60-70 percent to 50 percent of net revenues.
Tariff Relief and Trade Enforcement
CAMEX Resolution 17/2012 has amended the domestic regime that provides tariff relief to imported machinery and equipment that is not produced domestically by excluding "integrated system" goods from the regime (the term "integrated system" refers to a complete set of machines conforming a production line). The amended regime does not provide for "integrated system" relief and instead requires parties requesting tariff relief to show a lack of domestic production for each piece of machinery or equipment conforming the production line to be imported.
In addition and as previously reported, the Federal Revenue Service has signed an agreement with the National Institute of Technology, Normalisation and Industrial Quality (INMETRO) to improve the oversight of imported goods as well as the supervision of prohibited practices on imports. Other measures of potential interest undertaken by the Federal Revenue Service in recent weeks include enhanced enforcement to prevent fraud and irregularities on imports, strengthening of border controls, and the creation of the National Center for Risk Management (Cerad) intended as a sort of central intelligence unit to channel staff and other resources to the sectors and locations most affected by illicit activity.
Relief on Payroll Taxes and Other Tax Benefits
Brazilian authorities in have recent weeks amended the country's tax regime in various ways. For example, Provisional Measure 563 expands the number of companies that can replace the social security contribution on payroll for the social security contribution calculated as a percentage of the company's gross revenues. Sectors benefiting from this change include the textile, apparel, leather, footwear, furniture, plastics, electric material, auto parts, bus, naval, aerospace and capital goods sectors, as well as call centres, information technology activities, design houses and hotels. Other recently-announced tax benefits include a reduction in the IPI (federal value-added tax) on consumer goods and the postponement of the payment of IPI and PIS/COFINS contributions for the auto parts, textile, apparel, footwear and furniture sectors.
New Special Regimes and Government Procurement Benefits
Provisional Measure 563 also established a new automotive special regime that will allow eligible participants to benefit during 2013-2017 from a reduction of up to 30 percent in the IPI levied on imports of auto parts and vehicles. The reduction will be based on the percentage of acquisitions by the industry in the domestic market. In addition, under the REPORTO regime eligible parties will be able to claim an exemption from import duties, IPI and PIS/COFINS contributions for investments on ports and railways, provided the imported machinery and equipment is not produced in Brazil. Lastly, the Brazilian government has established preferences under Brazil's federal procurement programme for domestically-produced pharmaceuticals, backhoe loaders and motor graders.