Author: Antonio Guerrero

TAX BREAK PLAN TO PROVIDE RELIEF FOR MANUFACTURERS

By Antonio Guerrero

The Brazilian government unveiled a $25 billion plan to provide relief to domestic producers.

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Tax breaks to help beleaguered Brazilian manufacturers

Responding to concerns from local industries battered by a strengthening currency that is dampening industrial output and boosting imports, the Brazilian government unveiled a $25 billion plan to provide relief to domestic producers.

The plan, known as “A Bigger Brazil”, offers targeted tax breaks for select local manufacturers, including elimination of a 20% payroll tax and tax credits for exporters of industrial products equal to 0.5% of their export sales. The latter could be raised to as much as 3%.

The government is also now authorized to pay up to 25% more for local goods than for imported ones, particularly in the areas of healthcare, defense, communications and technology. The Brazilian real has rallied by around 48% since 2008. This has helped push up imports, which rose 32%—to $140.6 billion—during the first seven months of this year, according to data from the ministry of trade and industrial development. Industrial production also declined by a larger-than-expected 1.6% in June, the second-largest drop since 2008.

Brazil’s state-owned development bank BNDES is offering nearly $3 billion in preferential financing to companies supplying equipment and services to the country’s booming petroleum and gas sector. The bank made the announcement after Petrobras, the state-controlled oil company, said it would no longer finance its suppliers.

BNDES is offering sector suppliers rates as low as 4.5%, compared to the benchmark rate of 12.5%. Among equipment that Petrobras plans to purchase from local suppliers are 28 deepwater drilling rigs to be produced at Brazilian shipyards. The oil company, which is developing the new deepwater pre-salt oil reserves that will soon position Brazil as a major oil exporter, has a $225 billion investment plan for 2011–2015.

Infighting among shareholders is threatening a $2.5 billion plan by Japan’s Kirin Holdings to acquire a controlling 50.45% stake in Schincariol Group, Brazil’s second-largest domestic brewer. The deal is being held up by Schincariol family members with minority stakes that oppose the sale.