New automotive regime gives predictability to investments, says Anfavea

The new automotive regime created by the government for the 2024-2028 cycle will give predictability to investments by automakers in the country, says the Anfavea (National Association of Motor Vehicle Manufacturers). The entity that represents industries in the sector called the publication of the MP (provisional measure) excellent news 1,205 of 2023 by the president Luiz Inácio Lula da Silva (PT).

The text, published on December 30, 2023 and which is already in force, created the To move (Green Mobility and Innovation Program). The initiative has more than R$19 billion in tax incentives for the sector over the next 5 years. The program replaces Rota 2030, a benefits package that expired on December 31, 2023.

Mover brings incentives to companies that invest in decarbonization and meet the program’s mandatory requirements. This is a demand from car manufacturers, who worked throughout the year to extend benefits and model the new phase of Rota 2030 together with the vice-president. Geraldo Alckmin (PSB), who is Minister of Development, Industry, Commerce and Services.

In a note, Anfavea said that “once again, Brazil remains at the forefront by establishing rules that provide predictability to private investments in the country”. According to the association, “thanks to the continuity of public policies, vehicles produced today in Brazil are among the most economical and safe in the world”.

According to Ricardo Bastos, president of ABVE (Brazilian Association of Electric Vehicles), the program will allow Brazil to advance in electromobility and achieve the economy's decarbonization goals.

In addition to Mover, he celebrated the sending of the bill to encourage the modernization of industrial equipment through accelerated depreciation. Like the MP, the text was forwarded by the government to Congress on December 30th. The package totals R$3.4 billion.

“The provisional measure of Mover, long awaited by companies that are investing in electric mobility, and the accelerated depreciation bill will put Brazil on the path to new technologies”said Bastos. “The year 2024 will also be a year of a lot of work for electromobility, and now with the support of these important public policies”.

UNDERSTAND THE MOVE

Mover will have a tax exemption of R$19 billion over 5 years. The amount will be divided as follows:

• 2024 – R$3.5 billion
• 2025 – R$3.8 billion
• 2026 – R$3.9 billion
• 2027 – R$4 billion
• 2028 – R$4.1 billion

In Rota 2030, the average annual incentive until 2022 was R$1.7 billion. The previous program was created in 2018 and offered a series of tax incentives to the automotive industry in exchange for compensation, such as investment in R&D (Research and Development) and reduction of polluting gas emissions. The 1st phase of the package guaranteed benefits to the sector for 5 years.

In the new phase, Mover expands the sustainability requirements of the automotive fleet and includes benefits for the mobility and logistics sector as a whole. It also expands incentives for the production of less polluting vehicles, such as electric, hybrids and other alternative forms of low-carbon propulsion.

The text establishes new minimum recycling limits in the manufacture of vehicles and charges less tax to those who pollute less. The goal is to reduce carbon emissions by 50% by 2030, establishing requirements so that vehicles leave factories more economical, safer and less polluting.

The new program creates what the government has called IPI Green. A reward or penalty system in the collection of Tax on Industrialized Products, based on indicators that take into account:

• the energy source for propulsion;
• energy consumption;
• engine power;
• recyclability;
• structural performance and steering assistive technologies.

This system does not involve tax waivers – as some will pay below the normal rate, but others will pay above. The rates will be defined by presidential decree in the coming months.

On another front, the government will grant tax breaks proportionally to companies' investments in R&D. The parameters, however, have changed compared to the previous program.

• what it was like on Rota 2030: companies had to invest at least 0.3% of gross operating revenue in R&D, per year, and each real invested allowed a deduction of up to R$0.12 in IRPJ (Corporate Income Tax) or CSLL ( Social Contribution on Net Income
• how it looks on Mover: companies need to invest 0.3% to 0.6% of revenue. For each real invested you will be entitled to financial credits between R$0.50 and R$3.20. These credits can be used to reduce any federal tax.

The MP establishes the reduction of import taxes for manufacturers that import parts and components without similar national ones, as long as they invest 2% of the total imported in research, development and innovation projects in priority programs in the supply chain.