Government eliminates IPI (Tax on Industrial Property) for sustainable cars produced in Brazil

New rule applies to compact vehicles with low carbon emissions and more than 80% recyclable materials; measure is part of the Mover program

Compact vehicles produced in Brazil and with high environmental performance will have a zero rate of Tax on Industrialized Products (IPI). The measure was formalized by a decree signed on Thursday (10) by President Luiz Inácio Lula da Silva (PT), in a ceremony at the Planalto Palace, attended by ministers, parliamentarians and representatives of the automotive sector.

The initiative is part of the National Green Mobility and Innovation Program (Mover), launched last year, which establishes decarbonization targets for the national fleet through fiscal incentives. The goal is to encourage the automotive industry to invest in clean technologies while promoting domestic production.

To be eligible for zero IPI, the vehicle must meet four simultaneous requirements: be manufactured entirely in Brazil (including the welding, painting, assembly and engine manufacturing stages), emit less than 83 grams of carbon dioxide (CO₂) per kilometer driven, contain more than 80% recyclable materials and be classified as a compact car — a range that includes the automakers' entry-level models.

According to the government, the new model does not represent a loss in revenue. The tax rate table was created based on the zero-sum concept: the tax benefit for cleaner vehicles will be offset by the increased tax burden for those with inferior environmental and technological performance.

"A sustainable car without raising taxes, zero tax increases, without burdening the tax authorities, total balance, but encouraging decarbonization, sustainability, and social issues," highlighted the Minister of Development, Industry, Commerce, and Services, Geraldo Alckmin.

For models that do not meet the criteria for zero IPI, the decree establishes a new taxation system, expected to come into effect 90 days after publication. The base rate will be 6.3% for passenger cars and 3.9% for light commercial vehicles. From these percentages, the tax may rise or fall according to a formula that takes into account indicators such as energy efficiency, propulsion technology (electric, hybrid, or combustion), power, recyclability, and vehicle safety.

A hybrid-flex vehicle, for example, can receive a 1.5 percentage point discount for meeting engine requirements. If it also meets the Mover program's energy efficiency parameters, the discount increases to 2.5 points. And if it meets the minimum required level of recyclability, the discount totals 3.5 percentage points—reducing the IPI (Brazilian Institute of Industrial Property) from 6.3% to 2.8%.

According to estimates from the economic team, approximately 60% of the new vehicle fleet sold in the country in 2024 would have benefited from the tax rate reduction if the new rule had already been in effect. The decree signed Thursday is valid until December 2026, the deadline by which the new tax legislation is expected to fully come into effect.

The Mover program also establishes R$19.3 billion in financial credits through 2028, earmarked for companies that invest in research, development, and technological innovation focused on sustainable mobility. The expected return from the automotive sector is significant: according to projections from the National Association of Automotive Vehicle Manufacturers (Anfavea), investments associated with the initiative are expected to reach up to R$190 billion over the period, including the auto parts and distribution chains.

For Anfavea president Igor Calvet, the program brings regulatory predictability and encourages industrial development with greater domestic technological content. "A car produced today in Brazil pollutes 20 times less than a car manufactured in the early 2000s. This predictability, a state policy, is what Mover brings us."

In addition to stimulating the development of clean technologies and local manufacturing, the proposal aims to make entry-level vehicles more affordable by combining tax relief with environmental and social criteria. Encouraging the use of recyclable materials and energy efficiency could also impact the auto parts industry and automotive input suppliers, which will have to adapt to the new demands of the domestic market.

The decree also creates a new regulatory framework for vehicle labeling, with criteria that will serve as the basis for calculating the tax rate. The environmental performance classification will be reviewed periodically, based on technical standards updated by the National Institute of Metrology (Inmetro) and other regulatory bodies.

The text of the decree will be published in the Official Gazette of the Union in the coming days.