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Brazil Supreme Court justice suspends tax cut for Manaus Free Trade Zone products

Brazilian Supreme Court Justice Alexandre de Moraes suspended on Friday the effects of a decree to cut taxes on industrial products (IPI), but only for products manufactured in the Manaus Free Trade Zone.

Moraes' decision, which still has to be voted by the court to be confirmed, comes after a request by the Solidarity party. It would suspend the effects of decrees signed by President Jair Bolsonaro earlier this year.

The IPI tax is levied on industries that make and import manufactured products, like refrigerators, cars, air conditioners and televisions.

Bolsonaro, who announced in February a 25% cut on the tax for all industrial products except tobacco ones, deepened the reduction to 35% in late April, but for a smaller list of goods.

Companies operating in the Manaus Free Trade Zone are exempt from paying IPI, but can generate credits equivalent to the industrial tax and make deductions from other tax obligations. The lower the IPI rate, the smaller the potential credits, which reduces the fiscal advantage.

In a document, Moraes noted that the questioned decrees were "effectively capable" of impacting the development model of the Manaus Free Trade Zone, which could affect its competitiveness.

The Economy Ministry says the industrial tax reductions are aimed at helping industries recover from the pandemic downturn and fight inflation by enabling them to reduce prices.

(Reporting by Ricardo Brito; Writing by Carolina Pulice; Editing by Leslie Adler)

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