Brasília – The Import Tax on some basic raw materials may be reduced in order to keep inflation at bay, the Brazilian Finance minister Guido Mantega said this Friday (5th). He confirmed that the government is looking into moving the tax breaks originally due in September to an earlier date, so as to offset the effects of the dollar price hike seen in the past few weeks.
In September last year, the Brazilian federal government raised taxes on inputs such as steel, fertilizers, chemicals, glasses and tiles for 12 months to foster domestic production of these raw materials and make competition with imported items easier. However, according to Mantega, the higher dollar price has reduced the need for the protectionist measure.
“The dollar is fluctuating, but right now it is costing more than then [in September 2012]. Thus, it creates a sort of natural shield to these types of inputs,” said the minister. According to him, the rate by which the tax will be reduced has not been defined yet. “That will depend on how the dollar behaves, and on discussions with each of the industries involved.”
The minister noted that the measure will not become effective immediately, and that the government has yet to ascertain at what level will the US currency stabilize. The Federal Reserve (Fed), which is the US’ central bank, is expected to lower interest rates and cut down on dollar injections into the country’s economy. “We will be on the lookout. From now until September, we will see whether the dollar will stabilize at a different level, and based on that we will set the Import Tax,” he explained.
Regarding inflation in Brazil, Mantega said that when the government decided to raise taxes on imported inputs, executives in the industries involved agreed not raise prices. “Two phenomena have occurred. Firstly, some companies have actually raised their prices [not honouring the agreement]. Secondly, the turbulence caused by the Fed is driving down the real [Brazilian currency],” said the minister.
*Translated by Gabriel Pomerancblum
