MercoPress. South Atlantic News Agency

Brazil considering tax breaks and higher tariffs to help struggling industries

President Rousseff promised lower taxes for local industry

Brazil will extend a payroll tax break to some manufacturers as part of a package of new measures to help struggling industries in a move to help the recovery of Latin America's top economy, a senior government source revealed to the local media.

President Dilma Rousseff will shift a 20% tax on payroll to a 1% levy on gross revenue for companies in strategic sectors to eliminate an advantage foreign-produced goods have enjoyed at the expense of local manufacturers, said the official, who is involved in drafting the stimulus package.

Some manufacturers will be eligible for further tax breaks on revenues coming from the sale of their products abroad.

“This is a measure that aims to awaken the animal spirit in businessmen. We want them to boost investment,” said the official. The Brazilian plans to eliminate payroll taxes for manufactures in areas such as textiles, shipbuilding, furniture, auto parts and aircraft, the official said.

The Brazilian Real strong gains against the US dollar in recent years have left local manufacturers struggling to compete abroad and at home against imports and President Rousseff during her visit to India anticipated lower taxes for local industry.

According to O Estado de Sao Paulo the Brazilian government was also discussing plans to raise taxes on imported goods in certain vulnerable sectors, but some officials feared Brazil would run up against World Trade Organization limits on import tariffs, which the country has already reached in many sectors.

However “a move to raise taxes on revenue for all companies, not only those that rely on imported manufactured goods, while eliminating local payroll taxes, would be a way to avoid potential problems at the WTO”, the paper said.