Brazil's Lula to end industrial tax IPI, VP says

© Reuters. FILE PHOTO: Brazil's President Luiz Inacio Lula da Silva attends a breakfast with journalists at Planalto Palace in Brasilia January 12, 2023. REUTERS/Adriano Machado

SAO PAULO (Reuters) -Brazilian leftist President Luiz Inacio Lula da Silva will seek to end the industrial tax IPI, Vice President Geraldo Alckmin said on Monday, which would continue an exemption policy initiated by his predecessor Jair Bolsonaro.

At an event hosted by Sao Paulo's industry group FIESP, Alckmin acknowledged that the current administration considered reversing Bolsonaro's 35% IPI tax reduction, amid discussions on how to slash this year's primary budget deficit.

But Alckmin, who is also Lula's minister of industry and trade, pointed out that the idea, which industrialists rejected for increasing the sector's production costs, was abandoned.

"We managed to get that removed, not incorporated into the (fiscal) proposal. It wasn't incorporated and the next goal is to end the IPI, and ending the IPI is (through) tax reform," he said.

Alckmin reiterated that the government would now push for tax reform in Latin America's largest economy, adding it is "essential to industry."

The tax is levied on companies manufacturing and importing products, such as refrigerators, cars, air conditioners and televisions. It is raised or lowered by presidential decree, without the need for congressional approval.

Bolsonaro cut the IPI by 35% last year, in an effort to boost economic activity that the COVID-19 pandemic has dented. During the presidential campaign, he promised to zero the tax rate.

Lula, who won the election by a narrow margin, never mentioned reducing the IPI tax as a priority. His Finance Minister Fernando Haddad even discussed with his team ending Bolsonaro's tax reduction, which would increase government revenues by 9 billion reais ($1.8 billion).

When Haddad announced last week a package to boost revenue and cut expenses - with no changes to the IPI rate - he criticized the Bolsonaro administration for promoting a series of tax exemptions without pointing out compensations.

Alckmin also said Lula does not intend to revoke Brazil's labor and pension reforms, market-friendly moves passed by Congress in 2017 and 2019.

($1 = 5.1234 reais)