Why Brazil could tax electric vehicle sales over environmental concerns

The working group created by Brazil’s lower house to deal with the regulation of the tax reform has determined that the new selective tax should apply to electric vehicles. 

The tax will be applied to products that are harmful to health, such as cigarettes and alcoholic beverages, and to the environment. 

Parliamentarians' main argument for including electric vehicles was concern about the disposal of lithium batteries at the end of their useful life.

At the same time, combustion vehicles and firearms, which are backed by powerful lobby groups, were not included. 

The inclusion of electric cars was advocated by the ministry of development, industry, trade and services (MDIC), according to local press reports.  

Parliamentarians such as Reginaldo Lopes, member of the ruling Workers’ Party and representing Minas Gerais state, said combustion trucks were not included because Brazil is “essentially road-based.”

The text will still be voted on in a full session and the senate.

In a statement, the president of the electric vehicle association ABVE, Ricardo Bastos, said that the measure will not allow demand for vehicles in general and electric vehicles in particular to grow, preventing to reach the scale needed for local production. 

He said that electric and hybrid vehicles reduce or cut emissions of harmful pollutants to zero, reduce noise pollution and contribute to the reduction of greenhouse gases. 

"At the very least, only combustion vehicles that use fossil fuels should be taxed. Not electrified or biofuel-powered vehicles," he said. 

In the opinion of tax lawyer and partner at Martinelli Advogados, Cintia Meyer, the proposal highlights a contradiction in terms: while on the one hand sustainable economic and social development is being encouraged under the Mover electric mobility program, on the other hand, the industry is being penalized. 

"This disparity leads us to believe that, unfortunately, the initial concept of the selective tax of taxing products that are harmful to health and the environment has been distorted and turned into the finishing bill for revenue," she said in a press release.

SALES

According to ABVE, the first half of 2024 saw a total of 79,304 electrified light vehicles sold in Brazil, up 146% year-on-year and 288% compared to 1H22.

ABVE forecasts a record 150,000 electrified vehicles sold this year, which would be 60% more than last year’s total.

Electrified vehicles include all technologies: 100% battery electric vehicles, plug-in hybrid electric vehicles, flex and petrol hybrid EVs and micro-hybrid EVs, with a low degree of electrification.