Forced compromise? Brazil terminates policy of tax exemption for purchases below $50 has been revoked

Brazil revokes tax exemption policy for purchases below $50

Recently, there has been a lot of talk among cross-border friends who are involved in the Latin American market about the cancellation of Brazil’s tax exemption for goods valued under 50 US dollars. After Brazil’s Federal Revenue Service confirmed the cancellation on April 11th, people thought that the era of tax-exempt goods under 50 dollars had come to an end.

However, to everyone’s surprise, after Brazilian President Lula visited China and returned home, he immediately summoned Finance Minister Haddad and his economic team to discuss “the negative impact of taxing Asian e-commerce companies.”

Under President Lula’s active mediation, the policy of taxing overseas purchases under 50 US dollars was ultimately repealed. This decision is considered a compromise between balancing tax revenue and consumer interests, protecting the government’s fiscal revenue without burdening consumers excessively, and promoting the growth of Brazil’s domestic market.

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(Image source: Screenshot from Valor)

According to President Lula’s viewpoint, in the process of resolving tax evasion issues, the government should prioritize administrative measures rather than imposing new taxes. For example, the government can strengthen the inspection capabilities of the Federal Tax Service and investigate and punish enterprises suspected of tax evasion.

Under Brazil’s current tax laws, goods shipped in the name of an individual to an individual with a value of less than 50 US dollars can be tax-exempt, but goods shipped in the name of a company to an individual are subject to a tax of 60% of the total value. This practice takes into account both the rights of individuals and the legitimacy of national tax revenue.

****Why was it canceled and then repealed?****

In recent years, Brazil’s cross-border e-commerce scale has shown a trend of expanding. Previously, prices of some goods in Brazil were relatively high. However, the quality and styles of domestic products cannot compete with foreign brands, so many consumers choose to shop cross-border to get more choices and more favorable prices.

According to the latest estimation by Statista, from 2023 to 2027, Brazil’s e-commerce development will rank first among 20 countries in the world, with a compound annual growth rate of 14.6%, while the estimated compound annual growth rate of global e-commerce during the same period is 11.3%, making it one of the most robust countries in the world in terms of e-commerce development momentum.

(Image source: Statista)

According to the report of consulting company Conversion, the number of visits to Brazilian e-commerce platforms increased by 8% in March, the first growth after four consecutive months of decline. The report shows that in March, the number of independent visitors to Brazilian e-commerce platforms was 2.31 billion, and the largest source of traffic was search engines (46.7%), followed by natural search (24.5%) and paid search (18.4%).

Conversion also reported on the ranking of mainstream e-commerce platforms in Brazil. In March, the top 10 online platforms in Brazil accounted for 50.5% of the total e-commerce traffic. Among them, Mercado Livre accounted for 14.8% and ranked first. Amazon ranked second, accounting for 7.9%. Shopee ranked third with a share of 6.3%.

(Image source: Conversion)

Due to the impact of the cross-border e-commerce market share, the local retail industry has been affected. Previously, the Brazilian local retail industry had repeatedly pressured the Brazilian authorities, stating that cross-border e-commerce from Asia used tax policies to not tax or price their products too low, damaging the interests of domestic enterprises. The representative of the Brazilian Entrepreneurs Association FPE said: “Brazil currently receives 500,000 packages from China every day, and the government does not collect hundreds of billions of taxes every year.”

Regarding this, the Brazilian government has launched a tax policy on “whether to cancel the tax on goods under $50 for cross-border shopping”. The tax policy was implemented in mid-April, which increased the economic burden on consumers, especially for many small items such as books and documents, which have relatively high tax rates. The implementation of this policy will make many consumers hesitate.

This news has become a hot topic on Brazilian social media, with 83% of users giving negative evaluations of the government’s implementation of this policy. Under the heated discussion of many people, the Brazilian government decided to withdraw its policy of terminating tax exemption for individual import purchases under $50. The previous announcement stated that ending exemptions is one way to curb smuggling and unfair competition, but this was not widely accepted. President Lula requested the economic team to find another solution.

However, this announcement of abandoning the tax policy on cross-border shopping under $50 will greatly reduce the shopping costs of consumers. Consumers do not need to pay taxes and can easily shop online. However, the Brazilian government will still impose corresponding tax levies on higher value goods, which can prevent unnecessary tax losses to a certain extent and also protect the healthy development of the domestic market.

Be prepared and stabilize the foundation

Although this new tax policy was eventually withdrawn, it means that the Brazilian government has recognized the impact of cross-border e-commerce on local retail companies. Although this tax reform did not achieve the expected goals, it cannot be denied that in the future, the Brazilian government will strengthen its suppression of foreign cross-border platforms and support for local retail e-commerce platforms.

Therefore, in the future, the gap between the market share of local e-commerce platforms and cross-border e-commerce will further widen. Chinese sellers may be more inclined to choose to operate local stores in order to bypass the many restrictions of cross-border e-commerce. Platforms will also direct their most expensive traffic resources towards the sales of local Brazilian stores, thus significantly increasing local-to-local orders.

Secondly, this new tax policy will have a significant impact on consumers. From a certain perspective, coordination and integration are needed in various aspects such as supervision, tax collection, customs clearance, and logistics, but existing policies and systems often lack coordination and integration, leading to huge challenges in implementing the new tax policy.

Overall, the Brazilian government will introduce more policies to regulate the current e-commerce market in the future. In addition, as more cross-border sellers become familiar with the Brazilian e-commerce market, more new sellers will enter this blue ocean. Existing sellers should evaluate their own situation, change their thinking, and make category layouts in advance based on local preferences.

In the face of uncertain policy reforms in the future, we should plan ahead, follow compliance, and strengthen measures such as brand, quality, and service in operations. At the same time, in a large market environment, the more adversity, the more it can squeeze out some non-professionals, and the more opportunities it has to be reborn. Opportunities are always left to prepared people.

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