“Lula Amendment” extends benefit to automakers contested by TCU and CGU

Rejected in the Chamber of Deputies, a controversial device sponsored by President Luiz Inácio Lula da Silva (PT) may return to the tax reform proposal in the course of the text in the Senate. This is an article that provides for the extension until 2030 of tax incentives for vehicle assemblers installed in the North, Northeast and Midwest regions.

In force for more than two decades, the so-called Automotive Policies for Regional Development (PADR) cost the Union around R$ 5 billion per year, but, according to an audit carried out jointly by the Federal Audit Court (TCU) and the Comptroller General of the Union (CGU), have low socioeconomic impact and did not fulfill the objective of decentralizing the country’s automotive industry.

Dubbed the “Lula amendment”, the article that aims to extend the program was custom-written to benefit the Chinese BYD, which intends to settle in Camaçari, Bahia, and has already announced an initial investment of R$ 3 billion for the production of heavy vehicles electric cars at the former Ford plant in the city.

The second paragraph of the article, which provides for the extension of the term of validity of incentives for approved projects until the end of 2025, would help Stellantis, the group that controls the brands Fiat, Citroën, Jeep and Peugeot and which plans to expand its operation in Goiana, in Pernambuco.

The excerpts were only included in the final version of the proposed amendment to the Constitution (PEC) of the tax reform, presented on the date of the vote on the text by the Chamber of Deputies, on July 6th, and would have been commissioned by the Minister of Finance, Fernando Haddad – at the contrary to his own discourse against special taxation regimes.

A few days before the vote on the PEC in the Chamber, Stella Li, world vice president and president of BYD in the Americas, was at the Planalto Palace with Lula, the vice president and minister of Development, Geraldo Alckmin, and the governor of Bahia, Jerônimo Rodrigues (PT), who also sought out deputies to defend the inclusion of the benefit in the final report submitted for analysis by the plenary.

One more vote would have maintained an excerpt in the version of the PEC approved in the Chamber

In the discussion in the Chamber, a suppressive emphasis presented by the PL gained support from representatives of states in the South and Southeast of different parties, including the government base. To be maintained, the section would need the support of 308 deputies, but it won 307 votes in favor – a single more vote, therefore, would have allowed the maintenance of the section in the PEC.

Among the 166 deputies who voted for the removal of the article from the final text are all 12 representatives of the PSOL, another 12 parliamentarians of the PT itself, in addition to members of other parties allied with Lula, such as Jandira Feghali (PCdoB-RJ), Tabata Amaral ( PSB-SP) and Aliel Machado (PV-PR).

“This is unfair competition, especially with the states of Rio de Janeiro, Minas Gerais, Espírito Santo, São Paulo, Paraná, Santa Catarina and Rio Grande do Sul. It is a tax advantage without a budget”, said deputy Antônio Carlos Rodrigues (PL-SP).

“This incentive was already questioned by the Federal Court of Auditors, 2 months ago, for being ineffective. I recommend that people from the South and Southeast vote ‘no’, and from the Northeast as well, if they want to”, he declared from the plenary.

The leaders of the PT/PCdoB/PV federation, of the MDB/PSD/Republicanos/Podemos/PSC bloc and of the opposition released their benches, while Novo and the PSOL/Rede federation oriented against the device. PT leader in the Chamber, Zeca Dirceu (PT-PR), did not vote.

Senator presents amendment to reinsert article in tax reform

In the Senate, the text is currently in the Constitution and Justice Commission (CCJ), where the rapporteur for the matter, Eduardo Braga (MDB-AM), plans for the 4th of October to vote on an opinion on the proposal.

On August 4, on the return of the parliamentary recess, Senator Otto Alencar (PSD-BA), leader of his party in the House, presented an amendment to the committee to reinsert the article suppressed by the Chamber in the PEC.

“Without this extension, the North, Northeast and Midwest regions are harmed, losing important investments that generate jobs in the respective states”, justifies the senator in the proposed amendment.

Interestingly, deputy Otto Alencar Filho (PSD-BA) voted against the measure in the plenary of the Chamber, a decision that the senator called his son’s “mistake” to Veja magazine.

Incentive created in the 1990s was successively extended and is valid until 2025

The tax incentive for automakers in the North, Northeast and Midwest regions was implemented in the government of Fernando Henrique Cardoso (PSDB) by two laws, one from 1997 and another from 1999, which guarantee presumed credit of Tax on Industrialized Products (IPI) to vehicle and parts factories in the three regions.

The benefit, which initially would last until 2010, was successively extended by Congress, without any proof of socioeconomic return, and is now valid until the end of 2025.

According to the audit by the TCU and the CGU, between 2010 and 2021 the Union waived R$ 51 billion in taxes for automakers installed in the covered regions, in amounts corrected for inflation. Between 2017 and 2021, the waiver was more than BRL 5.6 billion per year, on average. “A cost that is redistributed to all other taxpayers”, point out the auditors.

In the case of the Stellantis factory in Goiana, where the Jeep brand models are produced, the tax waiver is equivalent to BRL 34,400 per month per job generated, “without, with that, significant changes in the socioeconomic reality of that municipality. ”, according to the report.

Competitors act to prevent extension of benefit to Stellantis

To the newspaper “O Estado de S. Paulo”, five competing vehicle manufacturers said they were acting to try to stop the extension of the incentive that would benefit Stellantis. Two of them also report that the measure may influence future investment decisions, especially at a time when the energy transition requires high contributions from companies.

For these automakers, it would be contradictory to include the measure in a tax reform that is supported by the sector due to the expectation of providing more competitiveness, predictability and equality to industries, with the simplification of taxes, reduction of obstacles to exports and an end to the accumulation of credits tax withheld, according to the publication.

Despite this, the group would be in favor of supporting manufacturers that come to the country to develop new technologies, as is the case of BYD.