Bolsonaro postpones bigger IPI cut after getting angry with lawsuit against tax reduction

President Jair Bolsonaro (PL) postponed the additional cut in the IPI (Imposto sobre Produtos Industrializados), from 25% to 33%, after being angered by a lawsuit by the Pros asking for the suspension of the decree that eased the tax burden on these goods.

The new tax reduction was promised by Minister Paulo Guedes (Economy) and was scheduled to be published on Thursday (31).

The government has used the increase in federal revenue to announce tax cuts in the year the president seeks reelection.

On Wednesday night (30), however, Bolsonaro warned his aides that he would not sign the measure in the face of the acronym’s attempt to overturn the initial tax cut.

Government members attribute the judicial attack to an articulation of the bench of parliamentarians from Amazonas, in an attempt to shield companies that produce in the Manaus Free Trade Zone.

The reduction of the IPI takes the competitiveness of products made in the region, since they are already exempt from the tax and would not have any additional benefits.

The government even signed an agreement with congressmen to remove from the scope of the measure some products that are made in the Free Zone.

The agreement was sewn to unlock the vote on the bill that changed the ICMS (Tax on the Circulation of Goods and Services) on fuels and exempted PIS/Cofins on diesel, cooking gas and aviation kerosene — the government’s bet to mitigate the high pump prices.

The promise would be fulfilled in the same decree. But, faced with the lawsuit, the president decided to suspend any changes.

Bolsonaro’s irritation was visible during the president’s live on Thursday night. The action ended up going into the hands of Minister Alexandre de Moraes, of the Federal Supreme Court (STF), whom the Chief Executive has already attacked several times.

“Our dear Minister Alexandre de Moraes is drawn as rapporteur of the Pros action against Bolsonaro’s decree that reduces IPI [em] up to 25%. In other words, the Pros party is against the reduction of IPI on cars, motorcycles, white goods such as refrigerators, stoves, microwaves,” Bolsonaro said.

“And it is in the hands of the dear Minister Alexandre de Moraes whether he is going to have this decree of mine archived or to say that it is in effect. If he orders it to be archived, personal attention: It will go up [o] IPI [em] 25% by car, motorcycle, refrigerator, stove, etc etc etc”, added the president.

However, Bolsonaro’s own decision to delay the decree almost overturned the initial 25% cut — which would have resulted in an increase in the tax burden to the same level as before the measure.

The decree of February 25, which implemented the reduction of the IPI, was prepared on top of the rate table that has been in force since 2017 and would be valid until March 31, 2022.

The expectation was to make the cut permanent in the new decree that would be published on Thursday, with a new table of IPI rates.

As this did not happen by order of Bolsonaro, the new IPI table fixed at the end of last year would come into force this Friday (1st), with rates identical to those of the period before the cut and without any valid discount on them.

In practice, the tax on a cell phone, for example, which rose to 11.25% after the reduction, would again be subject to a rate of 15% if nothing was done.

According to technicians heard by the sheet, a last-minute decree had to be drawn up to postpone the start of the new IPI table for 30 days. The rule was published in an extra edition of the Official Gazette on Thursday.

The postponement came as a surprise to businessmen and importers, who were not clear on which reference table to use.

The Federal Revenue received reports of companies having difficulties issuing invoices or importing inputs and products, but technicians were working to normalize the situation.

According to government sources heard by the report, a new decree on the IPI must be published before the beginning of May to implement the tax reduction on a permanent basis.

The final amount of the cut is still being discussed, but technicians say that the intention remains to enforce the 33% reduction.

In February, when announcing the 25% cut in the tax rates, Guedes said that the measure would boost the Brazilian industrial park. “The 25% reduction in the IPI is a milestone in the beginning of Brazilian reindustrialization, after four decades of deindustrialization,” he said.

“[O imposto] was a stake in the Brazilian industry, and we are going to take that stake out,” he added at the time.

According to the minister, the team even studied a 50% cut, but opted for a milder reduction precisely to avoid a major impact on industries in the Manaus Free Trade Zone, which has as one of its differentials the exemption from IPI on goods produced in the region. The strategy, however, had no effect, as the measure still displeased the Amazonas bench.