CARS IN BRAZIL: EXPENSIVE FOR CONSUMERS, CHEAP FOR MANUFACTURERS

WHEN WE ANALYZE THE PRICE OF A CAR IN BRAZIL WITHOUT TAXES, IT IS ONE OF THE CHEAPEST IN THE WORLD. ONCE THE TAX BURDEN IS REMOVED, THE PRICE OF THE CAR IN DOLLARS OR EUROS BECOMES HIGHLY COMPETITIVE. BRAZIL HAS A HIGH TAX BURDEN ON CARS BECAUSE IT TAXES CONSUMPTION INSTEAD OF INCOME. THE SYSTEM IS DIFFICULT TO CHANGE, EVEN WITH TAX REFORMS, BECAUSE THE COUNTRY COLLECTS VERY LITTLE THROUGH INCOME TAX AND MUCH THROUGH CONSUMPTION TAXES, WHICH IS UNFAIR: LOW-INCOME PEOPLE SPEND 100% OF THEIR INCOME ON CONSUMPTION, WHILE HIGH-INCOME PEOPLE SPEND ONLY 30 TO 50%, AS THEY SAVE THE REST.

CHANGING THIS SYSTEM IN A DEMOCRACY IS EXTREMELY DIFFICULT. WHEN A REFORM IS PROPOSED TO INCREASE INCOME TAX TO REDUCE CONSUMPTION TAXES, THE RICH LOSE AND USE THEIR INFLUENCE TO BLOCK CHANGES. MEASURES SUCH AS WEALTH TAXES ARE ALSO VERY HARD TO IMPLEMENT, AS FRANCE'S EXPERIENCE HAS SHOWN.

MOREOVER, BRAZIL SPENDS BETWEEN 35% AND 37% OF GDP TO MAINTAIN THE GOVERNMENT APPARATUS, MORE THAN THE UNITED STATES (33–34%, WITH 4% GOING TO DEFENSE) AND MUCH MORE THAN CHINA (24%), MEXICO (25%), AND CHILE (25%). THE COUNTRY ALSO HAS DEBT CLOSE TO 90% OF GDP. DUE TO ITS FRAGILE CURRENCY, BRAZIL HAS TO PAY HIGHER INTEREST RATES TO FINANCE DEBT, MAKING THE COST EXTREMELY HIGH.

INCOME TAX IN BRAZIL IS RELATIVELY LOW, WITH MAXIMUM RATES MUCH LOWER THAN DEVELOPED COUNTRIES (27% IN BRAZIL, 40% IN EUROPE AND THE U.S., 30–35% IN JAPAN). TO MAINTAIN REVENUE, THE GOVERNMENT DEPENDS ON CONSUMPTION TAXES, INCLUDING ON CARS.

TAX BURDEN ON CARS IN BRAZIL:

• RANGES BETWEEN 57% AND 63%, DEPENDING ON IPI, ICMS, AND PIS/COFINS

• IPVA IS 4% PER YEAR, A RATE NONEXISTENT IN MOST COUNTRIES

• CARS ARE MAJOR REVENUE SOURCES FOR THE GOVERNMENT

• ANY TAX REDUCTION SIGNIFICANTLY IMPACTS REVENUE

BRAZIL IS A COUNTRY WHERE CARS ARE EXPENSIVE FOR CONSUMERS BUT CHEAP FOR MANUFACTURERS, WHO RECEIVE A RELATIVELY LOW AMOUNT COMPARED TO THE FINAL PRICE, EVEN THOUGH THE TAX-FREE PRICE IS INTERNATIONALLY COMPETITIVE.

TABLE WITH EXAMPLES OF POPULAR MODELS:

BRAND	MODEL	PRICE WITHOUT TAX (R$)	TAX (R$)	TOTAL PRICE (R$)
FIAT	Mobi	36,900	30,500	67,500
Hyundai	HB20	42,600	35,100	77,700
Chevrolet	Onix	44,900	37,000	82,000
Volkswagen	Polo	46,000	37,900	83,900
FIAT	Strada	53,100	43,800	96,900
Toyota	Corolla	81,800	67,400	149,300
Honda	HR-V	81,500	67,300	148,900
Jeep	Compass	100,100	82,500	182,600
Volkswagen	Jetta	124,300	102,600	226,900
Toyota	Hilux	185,200	152,700	337,900

CARS IN BRAZIL ARE ONE OF THE GOVERNMENT’S LARGEST SOURCES OF REVENUE. WITH A HIGH TAX BURDEN, THEY BECOME EXPENSIVE FOR CONSUMERS BUT PROFITABLE FOR THE GOVERNMENT, SINCE THE TAX-FREE PRICE IS VERY COMPETITIVE INTERNATIONALLY. THE CONSUMPTION-BASED TAX SYSTEM, THE POLITICAL DIFFICULTY OF REFORM, HIGH PUBLIC SPENDING, AND LARGE DEBT ARE FACTORS THAT MAINTAIN THIS SITUATION.