Heineken Holding, which heads the Heineken Group, is to delay its expansion plans in Brazil, following the proposed federal government initiated tax hike of 20.8%.

The new tax, which is set to be applicable from October 2012, is higher than that of 2011, which was 17%, reported the Agencia Estado news agency.

Heineken Brazil corporate relations vice president Paulo Macedo told the news agency that the beverage industry is very price sensitive.

"Last year, when there was an adjustment in taxes, had to pass the costs on to final values, which culminated in a 2% drop in sales volume of beer last year (data Institute Nielsen)," Macedo added.

"This year, the prices of items are already rising, because we need to pass our cost in dollars.

"If there is further increase in taxation will be no new lending."

Already in 2012, the sales fell 1.6% in January through May 2012.

Heineken is planning to delay its proposed expansion of a production line in Araraquara in August 2012 and will confine with its current capacity.

Despite the adverse environment, the company is confident of coming back especially after two years of operations in the country.

Macedo said this period was targeting the performance of Heineken in the domestic market.

Once the market comes back, Macedo plans to introduce cider into the Brazilian markets.

Macedo told the agency that the cold beverage industry planned BRL7.9bn ($3.8bn) in investments.