Government plans to double the list of products that escape IPI cut

The government prepares a new decree to cut the IPI (Tax on Industrialized Products) after Minister Alexandre de Moraes, of the Federal Supreme Court (STF), has prevented previous attempts saying that the Manaus Free Trade Zone could be harmed.

The Ministry of Economy plans to publish the new text later this week, maintaining the general lines of the previous decree, but practically doubling from about 60 to 125 the items that will be left out of the cut. With this, the expectation is to maintain 97% of the products manufactured in the region with the original rates.

The Manaus Free Trade Zone has as one of its differentials the exemption from IPI on goods produced there and, with the reduction of the tax throughout the country, this advantage would decrease.

The new decree includes lighters, battery chargers, razor blades, cash registers, wristwatches, ballpoint pens and dishwashers in the list of products that are left out of the cut.

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.

The 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.

In July, the government published a new decree that exempted around 60 products from the cut. But then Moraes suspended the effects of the text.

Now, members of the government say that the relationship with Moraes on the subject is better.

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

In June, Guedes again defended the end of the IPI. He claims that the tax is harmful to Brazilian industry.

“We are committed to ending taxes that destroy the country’s productive capacity,” said Guedes. “Our idea is to end the IPI. It deindustrialized Brazil. We dropped from 35%. If we continue, we will drop to zero.”