Chamber removes tax incentive to Chinese automaker – 07/07/2023 – Market

In a defeat for the government of Luiz Inácio Lula da Silva (PT), the plenary of the Chamber of Deputies overturned a Tax Reform device that assured tax benefits to the Chinese automaker that will install itself where the Ford factory in Camaçari, in the Bahia.

The article was important to the Executive and, according to reports, it was a request endorsed by Lula, who last June 28 received representatives from BYD (Beyond Your Dreams) to formalize the deal.

The highlight was already presented in the second round of voting for the leadership of the PL, an opposition acronym. Because it was a deletion of the text, the government had to secure the support of 308 deputies to keep the article within the PEC (proposed amendment to the Constitution). The score reached only 307 votes – that is, the defeat was given by just one vote.

The result was celebrated by members of the opposition, who had the reinforcement of 12 parliamentarians from the PT itself to reject the change. PSOL and Rede, acronyms of the government base, advised against the amendment.

The theme had been negotiated with reserve in recent days and became a priority, especially for ministers and congressmen linked to Bahia. The state is a historic stronghold of the PT and is also the electoral base for Minister Rui Costa (Casa Civil) and the leader of the government in the Senate, Jaques Wagner (PT-BA).

According to reports, the leader of the União Brasil in the Chamber, Elmar Nascimento (BA), had already traveled to the state on Thursday (6), but returned to Brasília this Friday (7) just to dedicate himself to the articulations for the maintenance of the benefit in the text of the Tax Reform.

Behind the scenes, parliamentarians from the Northeast showed irritation with what they called the government’s lack of effort to place votes in favor of maintaining the device. Part of the congressmen from the South and Southeast, in turn, saw the demolition of the stretch as a chance to maintain greater competitiveness for automakers in these regions.

The new article had been included in a plenary agglutinative amendment, filed at 9:43 pm this Thursday — less than ten minutes before the proclamation of the result of the vote on the basic text. Parliamentarians from parties such as Novo complained about the fact that they had not been aware of the new version before, which was initially endorsed by parliamentarians.

The reform already contained mechanisms to ensure the validation of ICMS tax benefits until 2032, as approved in Complementary Law 160, of 2017.

The new provision extended PIS/Cofins and IPI (Tax on Industrialized Products) benefits to projects that had been approved by December 31, 2024. The concession would also reach projects validated by December 31, 2025 “that expand or restart production in an industrial plant used in active or inactive projects approved until May 31, 2023”.

In practice, the article guaranteed the granting of benefits even if the factory had not yet been effectively installed on the date of enactment of the Tax Reform. The beginning of the company’s activities is what marks the beginning of the application of incentives.

The measure would have the potential to benefit, for example, the Chinese automaker BYD (Beyond Your Dreams), which announced last Tuesday (4) R$ 3 billion in investments to manufacture electric cars in Camaçari (BA), where the Ford factory. The protocol was signed in October 2022, but the plants are only expected to start operating at the end of 2024.

The previous week, on June 28, Lula received at the Planalto Palace the executive vice president of BYD and president of BYD for the Americas, Stella Li, alongside Rui Costa and the governor of Bahia, Jerônimo Rodrigues (PT) .

The initiative would also serve Stellantis, which has a Jeep factory in Goiana (Pernambuco). The automaker’s tax benefits are only valid until the end of 2025 – which was pointed out as a temporary “mismatch” of incentives to be corrected in the reform.

Lula’s allies said on Thursday night that the article was “correctly included” by the rapporteur in the reform, since Bahia closed the agreement with the Chinese automaker recently, within the current rules that will be maintained until 2032.

The assessment is that approving the PEC without this measure could compromise the agreement and even generate legal uncertainty.

There is now a fear that Brazil will be “demoralized” by China. The text may still be subject to changes in the Federal Senate.

Deputies from other parties that have Bahia as an electoral stronghold also supported the text. “We also ask that the rapporteur pay special attention, as our governor Jerônimo Rodrigues requested, so that the automotive regime in the Northeast can be extended, which has been generating a lot of employment, a lot of development”, said deputy Gabriel Nunes (PSD-BA) during discussions on Thursday.