MercoPress. South Atlantic News Agency

Brazil renews tax cuts for local carmakers until 2013 to help industry and jobs

The cost for the Treasury is 800m Reais said Minister Mantega

Brazil will renew tax cuts for local carmakers through the end of the year, President Dilma Rousseff announced this week, extending a key economic stimulus measure to help recovery in Latin America's largest economy.

The government has handed broad tax incentives to the auto industry to prevent layoffs and jump-start a struggling manufacturing sector that dragged down the Brazilian economy to a near standstill. The auto sector makes up more than a fifth of the country's industrial output and 5% of its economy.

The cut in the so-called IPI tax results in reducing the price to consumers by about 7%. The government helped boost car sales in May with the tax reduction, leading to record new automobile sales in August.

But repeated renewals of the tax cuts -- previously valid through the end of October -- have had diminishing returns, and auto sales slumped in September. Car production levels have been slower to recover, as the industry focused on clearing inventories from the first half of the year.

The extension of the IPI tax break for automakers will likely be the last one and should cost the government about 800 million Reais (395 million dollars) in lost revenue, Finance Minister Guido Mantega said on Wednesday.

However he expects the tax break to bolster investment and employment in the sector while also helping prevent car dealers from raising showroom prices.

“We don't want price increase at the end of the year... we want prices to continue low and well-behaved,” Mantega told reporters in Brasilia.

Rousseff also said her latest policies governing the auto industry would reduce the weight of imported vehicles in the Brazilian market.