Last-minute change in Tax Reform ensures benefits to Chinese automaker in Bahia – 07/07/2023 – Market

In a last-minute change, the rapporteur for the Tax Reform, deputy Aguinaldo Ribeiro (PP-PB), included in the text approved in the plenary of the Chamber a device that should guarantee tax benefits to the Chinese automaker that will install itself where the factory of Ford in Camaçari, Bahia.

The issue had been negotiated with reserve in recent days and became a priority for the government, given the weight of these deals for 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).

The new article was included in a plenary agglutinative amendment, filed at 9:43 pm this Thursday (6) — less than ten minutes before the proclamation of the result of the vote on the basic text. Parliamentarians from parties such as Novo complained that they had not been aware of the new version before, which was endorsed by the 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 extends this measure to projects that have been approved by December 31, 2024. The concession also covers projects validated by December 31, 2025 “that expand or restart production at an industrial plant used in active or inactive projects approved by December 31 May 2023”.

In practice, the article guarantees the granting of benefits even if the factory has 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 has 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, President Luiz Inácio Lula da Silva (PT) received Stella Li at the Planalto Palace, BYD Executive Vice President and President of BYD for the Americas, alongside Rui Costa and the governor from Bahia, Jerônimo Rodrigues (PT).

According to Lula’s allies heard by Sheetthe 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.

If the PEC (proposed amendment to the Constitution) were approved and enacted before the effective installation of the company and the start of granting the benefit, this could compromise the agreement and even generate legal uncertainty.

Among government allies, the perception is that, without this article, Brazil would be “demoralized” with China. Therefore, there were requests from both the government and PT parliamentarians to include the excerpt.

The initiative was also supported by deputies from other parties that have Bahia as their electoral stronghold. “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 the discussions.

The agglutinative amendment also included an article to extend, until December 31, 2043, the possibility of states and the Federal District to institute a contribution on primary and semi-finished products produced in their respective territories for investment in infrastructure and housing works.

The rapporteur stated that the device meets a request from Goiás, Mato Grosso, Mato Grosso do Sul and Pará.

These states have a kind of tax applied on products such as soy, with the exclusive objective of financing actions mainly related to road infrastructure. For some of them, it is a relevant source of income.

The initial text of the Tax Reform provided for the gradual end of these funds between 2029 and 2033, along with the transition from ICMS to the new IBS (Tax on Goods and Services).

The volume collected by these states with the contribution, however, would need to be guaranteed through the so-called federative transition, a 50-year period in which there will be a redistribution of resources between states and municipalities to avoid sudden fluctuations in revenues.

In practice, the other entities would end up paying the bill, giving up collection to reimburse the four states that today make use of this extra charge.

According to a technician, the departure given by the rapporteur extends the application of the contribution for 20 years, less than the 50 years during which the account would be shared with the rest of the country.

Deputy Aguinaldo Ribeiro said that the other states agreed with the change.

“These are funds that already existed in the states and that are specific, that they already charge, that are linked to infrastructure. In the agreement, a phase out was requested [redução gradual] to finish off the background. This deadline of 2043 is for there to be a phase out, and this fund to be finished during the transition, as we are proposing in consensus with all the governors”, he said.