Lax tax enforcement makes it easier for global e-commerce giants to enter Brazil, says BofA
RIO DE JANEIRO, BRAZIL – Bank of America (BofA) commented in a report regarding the entry of global e-commerce giants into Brazil and how faster shipping and the difficulty of tax collection can be an opportunity or a threat to local businesses.
International e-commerce in Brazil grew 67% in 2019 after Brazil’s Postal Service Correios and its Chinese equivalent allowed third parties to handle long-distance freight delivery in Brazil, dramatically reducing shipping times.
The following year, growth accelerated by 76%, according to consultancy Ebit Nielsen, reaching 21% of total e-commerce in the country at R$22.7 (US$4.2) billion, as platforms further facilitated demand with subsidies for sellers to ship goods.
This change in Correios policy has reduced the delivery time from about 40 working days to fewer than six days in the main metropolitan areas. In addition to faster shipping, platforms partially or fully subsidize shipping costs, creating attractive prices and maintaining high growth rates through 2021.
Higher-value shipments also benefit from limited fees and taxes. In 2020, federal authorities audited only 2.6% of all cross-border postal shipments, and more than 90% of audited shipments were subsequently required to pay taxes.
“We estimate the average tariff and ICMS rates capable of doubling costs if existing laws and regulations are enforced,” he points out.
The rapid growth of international e-commerce appears to be generating concern among industry groups, regulators, and law enforcement officials. All international trade transactions are subject to a 60% tariff and 17 to 25 percent ICMS, or state value-added taxes, regardless of value.
There also appears to be growing concern over the potential for the sale of counterfeit goods, stolen items, illicit substances, and other contraband, as well as lost tax revenue and job destruction.
“As cross-border trade grows, we anticipate greater and more organized opposition from Brazilian trade groups and government agencies,” BofA says.
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