Moraes suspends IPI cut for products from all over the country that are also produced in the Manaus Free Trade Zone

the minister Alexandre de Moraes of the Federal Supreme Court (STF ), suspended parts of the decrees that reduce the rates of the Tax on Industrialized Products (IPI) on goods from all over the country that are also manufactured in the industries of the Manaus Free Trade Zone (ZFM).

“I grant the precautionary measure to suspend the effects of Decree 11,052, of 04/28/2022 and of Decrees 11,047, of 04/14/2022, and 11,055, of 04/28/2022, only with regard to the reduction of rates in relation to to products produced by industries in the Manaus Free Trade Zone that have the Basic Production Process,” said the minister.

In the decision, Alexandre de Moraes mentions the Free Zone and not the rest of the country. But, according to the STF, Jair Bolsonaro’s decrees deal with tax reductions across the country.

“The reduction of the tax burden as provided for by the contested decrees, without compensatory measures for production in the ZFM, drastically reduces the competitive advantage of the industrial hub, threatening the “very persistence of this constitutionally protected differentiated economic model”, he said.

The decision took place in a lawsuit filed by the Solidarity party, which questioned three federal decrees in which the government expanded the linear reduction of the tax from 25% to up to 35%, as of May 1, and zeroed the IPI rate on extracts concentrates for the production of soft drinks, reaching the manufacturers of this input in the ZFM.

The party argued that the way in which the reduction of the IPI tax burden was implemented alters the competitive balance and affronts the constitutional protection of the Free Trade Zone.
According to the minister, the rules questioned are effectively capable of impacting the regional development model that the Federal Constitution decided to maintain.

“Whether in its economic aspect, by compromising the region’s inequality as a form of compensation for the higher costs arising from the challenges faced by local industry – thus affecting the competitiveness of the aforementioned hub vis-à-vis other Brazilian industrial centers –, or in its social aspect , by weakening several positive externalities related, among others, to the generation of jobs and income and environmental preservation”, he said.

This week, the parliamentary bench of Amazonas and the state governor met with Moraes to try to overturn the linear reduction.

For the minister, the decrees can have an effective impact on the regional development model maintained by the Federal Constitution, as compensation for the higher costs arising from the challenges faced by local industry, thus affecting competitiveness in relation to other Brazilian industrial centers. The minister also considered the social aspect, as the linear reduction of the IPI weakens positive factors related, for example, to the generation of jobs and income and environmental preservation.