Magalu, Brazil’s third-largest retailer by sales, has asked the government and the Federal Revenue Service for permission to join Remessa Conforme, a compliance program in effect since August that exempts international purchases of up to USD 50 from import taxes. Fast-fashion retailers Renner and Riachuelo and pet store chain Petz are reportedly planning to follow suit.
The program, which targets Asian e-commerce platforms such as Shein, AliExpress, and Shopee, was designed to give authorities back control over the huge volume of international packages coming from sellers on these marketplaces. In the end, however, it may have simply normalized a split-purchase business model that foreign retailers have learned to master.
Previously, such tax exemptions were only granted for packages sent between individuals. The problem is that Asian retailers exploited loopholes in the legislation by “disguising” business-to-consumer (B2C) purchases as peer-to-peer (P2P) transactions. This unfair competition has been on the industry’s radar for some time, especially since the Covid pandemic.
The number of products imported by Brazilians through online purchases and delivered through the Correios postal service tripled between 2020 and 2022: from 51 million packages (an average of 140,000 per day) to 176 million (or 483,000 per day), according to the Federal Revenue Service. And 2023 is poised to set a new record, with 123 million orders arriving in Brazil in the first half of the year alone. With the new government eager to meet bold new fiscal targets through revenue growth, cracking down on petty fraud in this growing segment seemed like a good idea.
In April, Finance Minister Fernando Haddad began talking publicly about changing the shipping, invoicing, and inspection rules for these cross-border sales to prevent retailers from using loopholes to fraudulently obtain cheaper inventory. Most importantly, this could generate up to BRL 8 billion (USD 1.63 billion) in annual revenue for the Brazilian government. However, President Luiz Inácio Lula da Silva scrapped the idea weeks later after an intense backlash from consumers, who argued on social media that changing the rules would mean making purchases more expensive, as additional costs are always passed on to the customer.
In June, Mr. Haddad shifted strategy, saying that starting in August, the Federal Revenue Service would step up inspections in partnership with the Correios postal service, and that companies that voluntarily joined a new compliance program would have an advantage: all purchases up to USD 50 for individuals (either from businesses or other individuals) would not pay import tax, as long as the marketplaces followed strict identification and shipping rules.
However, by going in the opposite direction of his wishes, Mr. Haddad would be foregoing BRL 32 billion in revenue over the next four years, he told The Brazilian Report in July, according to Federal Revenue Service estimates that consider maintaining the program until 2027.
It didn’t take long for the trio of Asian giants to seek out the Finance Ministry. By September, all three had asked to...
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