CHAPTER 5
IPI – Tax on Industrial Products
Since it is controlled by the Federation, the IPI rate is identical throughout the Brazilian territory, but varies according to the product.
SCOPE
The IPI falls under the authority of the Federation and deals with domestic and foreign industrial products.
The triggering events are:
- Output of industrial products at the production site,
- Release after Customs clearance of imported industrial products,
IPI TAXPAYERS
All industrial establishments are IPI taxpayers. Industrials are all entities processing products for all or part of their normal activity. The legal definition of an industrial process is as follows: any operation that changes the nature, operation, presentation, performance or destination of a product (Decree 2.637/98).
BASIS FOR CALCULATION AND RATE
BASIS FOR CALCULATION
The basis for calculation of the IPI is:
- For domestic products, the price of the product leaving the facility,
- For imported products, the customs price, plus importation tax, plus taxes and customs exchange commissions paid by the importer (see section on export to Brazil).
RATE
The IPI is said to be a ‘selective’ tax. In this sense, its rate is set according to the economic and social utility of the product. Thus, products of an “extravagant” nature, such as perfumes, yachts and luxury cars; or detrimental to public health, such as cigarettes and liquors, are subject to a high rate, whereas ‘staple’ products benefit from a reduced rate.
The Federal government uses this tax as a stimulus in its economic policies, and supports specific sectors of industry. In 2012 – to support the car manufacturers – it has reduced the IPI rate on the purchase of motor vehicles.
For the rate applied to different products, it is necessary to refer to a table made available to the public by the Ministry of Economy. This table (called TIPI for ‘Table of Taxes on Industrialized Products’) is available on http://www.receita.fazenda.gov.br (in Portuguese only) and contains an exhaustive list of different products divided into twenty sections. You will find an example in Appendix 4 (Chapter 88 of the TIPI – in Portuguese).
The IPI should be calculated and paid each month.
EXCEPTION
To encourage and assist Brazilian companies in exporting, the Federation grants an exception. Companies, whose sales are mainly made abroad, may apply to the Federation to benefit from this exception and avoid paying IPI on its purchases (whether produced from Brazilian companies or imported).
A company whose sales from exports were at least 70% of its total turnover before taxes (during the previous calendar year), qualifies for this exception.
Similarly, for goods due to be retained as fixed assets, processed, or consumed in the PIM (Industrial Pole of Manaus), the IPI is suspended, and becomes nil if such use of the product is confirmed.
RECOGNITION FOR IPI
Just like the ICMS, IPI is “not cumulative”. Thus, companies get IPI credit for the purchases of raw materials, packaging and other products incorporated into their own production. An essential condition to qualify for IPI credit: to have an invoice issued in full compliance with the law, and clearly disclosing the amount of IPI.
The IPI credit is valid for 5 years from the date of issue of the invoice. It is important to note, that for industrial companies, the IPI is calculated on the basis of the gross price paid inclusive of ICMS.
Calculating IPI with ICMS:
– Price with no tax: 5.395,00
– ICMS (17%): 1.105,00
– Price with ICMS (17%): 6.500,00
– IPI (10%): 650,00
– Total price: 7.150,00
Price with ICMS = $5.395,00 / 0,83
ICMS = $6.500,00 x 0,17
IPI = $6.500,00 x 0,10
Example of accounting for IPI:
– Purchase of raw materials for industry, subject to ICMS and IPI of 10%.
– Value of raw materials (including 90,000R$ of ICMS): 500,000 R$
– Net cost of raw materials: 410,000R$
– Amount of the IPI @ 10%: 50,000 R$
– Total to pay supplier: 550,000 R$
As the sale of the finished product will be subject to levies, the company will be entitled to a tax credit of ICMS and IPI.
Accounting for the purchase of raw materials:
ASSETS
Stock Raw: 410,000
ICMS credit: 90,000
Credit IPI: 50,000
CURRENT LIABILITIES
Supplier: 550,000
Accounting for the sales of a semi-finished product for the industry, subject to ICMS and IPI of 12% (the rate of the IPI varies according to product, thus a company can face several different rates of IPI):
Accounting for the sale:
ASSETS
– Client receivables: 784,000
INCOME STATEMENT
– Sales: 574,000
CURRENT LIABILITIES
– ICMS liabilities: 126,000
– IPI liability: 84,000
Example of calculation of monthly balances of ICMS and IPI:
Below is a table showing the monthly amounts of purchase and sale of a product subject to ICMS and IPI.
Result: IPI balances are the following.
Tax Book – Calculation of IPI balance
Debit balances accumulated are always paid the following month. Therefore, the 34,000 balance calculated for the month of January, will be paid in early February.
However, credit accumulated balances are offset against debit due during the following months.
