BRASILIA, Brazil, July 31 (Reuters) - The Brazilian Finance Ministry recommended on Wednesday that production taxes on passenger vehicles with small to medium-sized engines should be lowered immediately and said it expected President Fernando Henrique Cardoso to issue a decree to that effect on Thursday.
The intent of the lowered tax rates, the ministry said, was to help the country's ailing automotive section sell and export more vehicles.
A ministry statement said Cardoso had received a recommendation to lower the Industrial Production Tax (IPI) for cars with engines above 1,000 cubic centimeters (cc) and below 2,000 cc to 16 percent from 25 percent.
Smaller, so-called "popular" cars with 1,000 cc motors will enjoy a much smaller tax cut -- to 9 percent from 10 percent.
The move is aimed at making the auto industry diversify their production, now focused on the inexpensive "popular" cars, and produce more larger cars that can be more easily exported, thus helping to generate trade surplus, the statement said.
It said "popular" cars accounted for 71 percent of overall production, while the industry was not using 36 percent of its overall installed capacity.
The National Association of Vehicle Manufacturers (Anfavea) has said Brazilian sales of domestically made and imported cars, trucks and buses dropped 17.7 percent in the first six months of this year from the same period in 2001, pressured by an economic slowdown and high interest rates.
U.S. car makers General Motors Corp and Ford Motor Co , Germany's Volkswagen AG and Italy's Fiat SpA all make cars in Brazil for local consumption and exports and dominate the market.