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Brazil offers tax advantages via e-commerce compliance program

Published 06/30/2023, 10:07 AM
Updated 06/30/2023, 04:09 PM
© Reuters. Shopping trolley is seen in front of AliExpress logo in this illustration, July 24, 2022. REUTERS/Dado Ruvic/Illustration

BRASILIA (Reuters) -Brazil's Finance Ministry will exempt companies participating in a new tax compliance program from paying federal taxes on e-commerce purchases up to $50, it announced on Friday.

The country has been trying to close a loophole that it said some Asian e-commerce giants were using to gain tax exemptions by sending shipments as if they were individuals and not businesses.

Finance Minister Fernando Haddad told reporters the new program aims to "balance competition" between marketplaces, addressing worries from local retailers.

Currently, shipments by companies of any value are subject to a 60% federal tax rate on imports, while shipments by individuals are exempt for orders up to $50, with the same tax rate applied above that amount.

The program, starting Aug. 1, offers faster and cheaper customs treatment for e-commerce companies that voluntarily meet criteria set by the government, the ministry's statement said.

The criteria include declaring imports and collecting taxes, by adding them to the price of products, before merchandise arrives in the country.

Under the program, e-commerce companies must also inform consumers about the origin and total value of the products, including federal and state taxes. Currently, these procedures are optional.

Taxes, if applicable, are currently paid by consumers after the merchandise arrives, following analysis and notification by the revenue service, resulting in longer delivery times.

The program will essentially relieve the revenue service of such tasks when e-commerce firms participate.

The e-commerce measures come in response to complaints from local retailers about unfair competition from Asian giants such as Alibaba (NYSE:BABA) Group's AliExpress, Sea Ltd's Shopee and fast-fashion giant Shein.

Previously, the government tried to end exemptions on all shipments as some companies imported products as individuals to avoid higher rates.

After opposition from the public, the government decided to maintain the tax exemption up to $50 but only for shipments made by individuals, stating it would explore a digital tax collection model for companies.

© Reuters. Shopping trolley is seen in front of AliExpress logo in this illustration, July 24, 2022. REUTERS/Dado Ruvic/Illustration

Citi analysts said in a note that the program is positive in the long run given the improvement in government oversight and more equal competitiveness, adding they did not expect the exemption incentive for products worth less than $50.

"Essentially, shoppers will continue purchasing overseas products at much lower prices and preserve (at some extent) the competitiveness of overseas platforms," they said.

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