IPI is one of the most common taxes in Brazil, being the seventh tax that generates more revenue for the Brazilian government. In this article, we will take a closer look at IPI.
What is IPI?
Short for Imposto sobre Produtos Industrializados, which is Portuguese for Tax on Industrialized Products, IPI is a federal tax that is applied to all national and foreign products that have been modified in some industrialized way for consumption or use. Overall, IPI is paid by all of those who own industries and by those who import industrialized goods to Brazil. The basis for the IPI tax calculation is the retail sales price for national products and the sales price plus the addition of the import duty and other import fees for all imports.
IPI is generally used as an incentive or as a hindrance for the consumption of some goods. For example, in order to encourage the acquisition of vehicles, the IPI levied on cars has been lowered by the government until December 2014, as was the IPI levied on electrical appliances between 2012 and 2013. On the contrary, the IPI on tobacco products has been raised to 300% in order to hinder consumption.
Over what is IPI levied?
IPI is levied whenever one of the following events happens:
- Customs clearance of imported industrialized goods, after import duties are paid
- Industrialized goods leaving an industrial facility
- Abandoned or seized goods acquired in an auction
Operations considered as industrialization of a product
Industrialized goods are the result of any operation considered as an industrialization, even if it was incomplete, partial or intermediate. The industrialization is any operation which modifies the nature, operation, finishing, presentation and finality of a product, or which perfects the product for consumption. There are five different types of industrialization:
- Transformation: carried over inputs or intermediate goods
- Processing: modifies, perfects or alters the operation, utilization, finishing or presentation of the goods
- Assembly: consists in assembling goods or parts of them, resulting in a new product, even if it is still under the same tax classification
- Conditioning or Reconditioning: alters the presentation of the product, by packing it, even when replacing the original packaging. Not valid when the packaging is destined only to transport the product
- Renovation or Reconditioning: carried over used goods or remaining parts of deteriorated goods
IPI taxpayers are all those that acquired goods through one of the events mentioned above, being them:
- Winner of a customs auction
Merchants that are considered as taxpayers of IPI are those that trade goods whose industrialization was performed in their own facility, or in third parties’ facilities, through delivery of necessary inputs.
All of the following facilities are considered as similar to industrial facilities in terms of being subject to IPI payment:
- Importers that commercialize imported goods
- Wholesalers or retailers that receive goods directly from any customs allocation that cleared goods imported by another premise of the same company
- Wholesaler affiliates who commercialize goods imported or industrialized by another premise of the same company
- Wholesalers of gemstones
IPI tax rate
The IPI tax rate varies according to each product, ranging from 0% to 20% in most cases, although the IPI for tobacco products is 300% in order to hinder consumption of these. All the IPI tax rates for different products can be found in the Tabela de Incidência do Imposto sobre Produtos Industrializados, which is Portuguese for Table of Incidence of Tax on Industrialized Products, or simply TIPI. The TIPI can be downloaded directly from Receita Federal’s website or you can search for IPI rates in our Tax Index.