Government prepares decree to implement IPI cut after imbroglio in the STF

The government is preparing a new decree to consolidate a 35% cut in the IPI (Imposto sobre Produtos Industrializados) after the previous attempt was limited by a decision by Minister Alexandre de Moraes, of the Federal Supreme Court (STF).

According to members of the Ministry of Economy heard by the Sheetthe decree should address the concerns of businesspeople in the Manaus Free Trade Zone – an area that has as one of its differentials the exemption from IPI on goods produced there and, with the reduction of the tax, this advantage would decrease.

The government had already cut the IPI by 25% in February and, in April, increased the cut to 35%. Moraes suspended the expansion for goods that are produced in the Manaus Free Trade Zone at the request of the Solidarity party and citing concern for the region.

“Without the existence of compensatory measures for production in the Manaus Free Trade Zone, [a medida] drastically reduces the hub’s comparative advantage, thus threatening the very persistence of this constitutionally protected differentiated economic model,” Moraes said in the May decision.

Moraes’ decision provoked indignation from members of the government, who saw an undue intervention by the STF minister amid an already stressed political climate between the Executive and the Judiciary.

The IPI cuts were signed by President Jair Bolsonaro (PL) and are defended by Minister Paulo Guedes (Economy) under the justification of returning gains in federal revenue to the population in the form of tax reductions.

“[O corte de 25%] it marks the beginning of Brazilian re-industrialization, after four decades of de-industrialization”, said Guedes in February.[O imposto] it was a stake in the Brazilian industry, and we are going to take that stake out,” he said.

On behalf of the Amazonian federal bench, Solidariedade appealed to the Supreme Court on the grounds that the way in which the reduction of the IPI tax burden was implemented would interfere with the competitive balance and would defy the constitutional protection of the Free Zone.

He also argued that the measure would achieve tax incentives aimed at promoting the balance of socioeconomic development between the different regions of the country.

According to the party, the loss of competitiveness would lead to the reallocation of productive investments and would contribute to the closing of factories.

“It is necessary to be clear that this aspect, embodied in the Industrial Pole of Manaus, attacked with unprecedented virulence, is the engine of the state’s economy”, said the party, at the time.

One of the representatives of Amazonas in Congress, Senator Eduardo Braga (MDB) used social media to say that Moraes’ decision would guarantee the competitiveness of the Free Zone. “This will guarantee employment, investment and legal security,” he said at the time.

The president of the Parliamentary Front for Competitive Brazil, deputy Alexis Fonteyne (Novo-SP), classified Moraes’ decision at the time as “very bad” and called the claim that the measure would be electorally unreasonable.

“The IPI reduction was taken clearly because there was an increase in collection. Brazil cannot be held hostage to the Manaus Free Trade Zone. It is absurd not to be able to reduce the IPI of all Brazil because of a Manaus”, said the parliamentarian era.