From the Super-Rich to the Middle Class, See How Everyone is in the Crosshairs of Federal Taxation.
The Remessa Conforme program, instituted by the federal government with the aim of adjusting taxes on imports between legal entities and individuals and making the collection process more transparent on major online sales sites such as Shein, Shopee, and AliExpress, is beginning to show its negative effects.
These effects will be felt directly in the pockets of Brazilians, especially those from lower-income classes, with earnings up to R$ 7,600 per month, who until recently benefited from online shopping for attractive products at lower prices not achievable domestically.
Initially, it may seem positive for consumers to know the exact amount of tax to be paid at the time of purchase, instead of discovering it only during shipping, which often led to surprises with high charges and delivery delays. However, the program also brings consequences that many find unfavorable.
Purchases under 50 dollars (about 250 reais at current exchange rates) will be subject to a 17% ICMS tax with exemption from federal import taxes. However, purchases over 50 dollars will also incur import taxes of 60% on the total value of the purchase—including delivery—from companies that join the program.
With the federal government focusing on these operations and pressuring companies to adapt to Brazilian tax systems, a cascading effect is triggered, placing the burden of taxation on the consumer.
This week, AliExpress announced a 92% tax on the total value of purchases, showing that those who believed companies would absorb the tax were mistaken.
This is how the market works: international giants maintain their profits, the government fills its coffers, and the consumer is left with an empty wallet.
However, it’s not only the middle and lower classes that will suffer from these taxes. There are also two proposals to tax the so-called super-rich. One bill in Congress aims to tax assets held abroad via offshore accounts, and concurrently, a Provisional Measure seeks to tax closed-end exclusive funds. According to the Ministry of Finance, this is intended to balance the treatment of investors in the country.
It is important to highlight some differences between closed-end exclusive funds—subject to the provisional measure—and other funds like fixed income or multi-market funds. The former belongs to only one investor and all costs of the portfolio are borne by them, meaning only millionaires can afford such expenses. These are highly personalized funds where income tax is charged only upon the redemption of the investment. In contrast, other funds have income tax charged in May and November, and management, custody, administration, and auditing costs are shared among investors.
In summary, the proposed bill suggests implementing a 15% “come-cotas” tax on closed-end exclusive funds, an advance tax on income that would be obtained in the year, with a 5% discount for funds that opt for early payment of the tax.
One of the major advantages of this type of fund is the ability to delay income tax payments, which contributes to its high returns.
Given the Ministry of Finance’s plans, will this type of investment remain attractive in Brazil? These measures could create dissatisfaction among major investors and potentially lead to capital flight from the country. Brazil lost R$12 billion in investments on the B3 in August, largely due to international uncertainties regarding China and the U.S. FED’s announcement of a potential interest rate hike, making the U.S. Treasury highly attractive to investors.
Brazil’s deficit for the first half of 2023 was R$7.7 billion, with a primary deficit of R$35.9 billion in July alone, and spending continues to increase. Recently, the creation of a new ministry, the Ministry of Small and Medium Enterprises, was announced, bringing the total number of ministries to 38.
The government’s strategy to increase revenue to balance the budget is evident, but are we prepared for the consequences? This should be a moment for the federal government to reduce spending rather than increasing taxes. It is essential for the government to adopt a more austere stance on public spending in its quest to reduce the deficit, seeking sustainable economic development while preserving Brazilian incomes and purchasing power.