May 29, 2024 15:08 2 min read (Updated: Jun 28, 2024 9:38) Transcript of this episode (with Cockatoo)
Shein, the Chinese fast fashion marketplace, adored by Gen Z, hated by designers, shrouded in controversy but undeniably massive. I’m sure by now you’ve heard about Shein, its projects for an IPO, the allegations of forced labour, its revolutionary approach to fast fashion designs and social media promotion, and its getting unraveled in tensions between the US and China. But that’s not what we’re here to talk about today. For us on Explaining Brazil we’re not focusing on SheIn, we’re focusing on Shine, as Brazilians
like to call it, and a whole host of other East Asian marketplaces, above all AliExpress and Shopee. We’ll explain how these platforms got so popular in Brazil in the first place, and why they are causing a very particularly Brazilian political crisis, and why, while Xi-In may be a generational thing in the US and Europe, the journalistic engine behind this podcast. You can also go the extra mile and make a donation to our newsroom, buying a coffee for one of our journalists. Because God knows
reporters live off of coffee. And you can also subscribe to our Buy Me A Coffee fan
page, pledging a monthly contribution to our newsroom in exchange for exclusive content that you won’t find anywhere else. Our Buy Me A Coffee subscribers are Wild Rice, Jacira de Oliveira, Carson Allen, Gabriel Luca, Andrei Novoseltsev, Pan Ludvik, Leslie Seal, Mark Hillary, Louise Renz, Erwan Menais, Aaron Berger, Karls Vreesvik, Alistair Townsend, Milo Renacido, Peter Abrahamsson, David Dixon, Jose Osi Stankovic, Emerging Market Muser, Anna Lund, Peter Sifrin, Anderson Da Silva and someone who chose to remain anonymous.
And our Buy Me A Coffee members come from all over the world so please if we’re butchering the pronunciation of your name please send us an email. If you too believe in the importance of independent journalism and if you want to hear your name on our podcast go to buymeacoffee.com slash BrazilianReport and subscribe to one of our membership levels. Click on buymeacoffee.com slash BrazilianReport till find out more. The controversy surrounding East Asian marketplaces such as Shein is a discussion that involves
some of Brazil’s biggest political actors, including the House Speaker, Finance Minister, President Lula himself and his wife. Above all it concerns tax, and not just any tax, one that has been dubbed in Brazil the taxa da bruxinha, or the little top tax. We’ve covered the topic extensively on the Brazilian report. Well, I say we, my fellow deputy editor Fabiane Ziola Menezes has covered the topic extensively on the Brazilian report, and I’m delighted to have her back on the podcast today. Hi Fabiane. Hi Ivan, great to be here again. So there’s quite a lot to get into in today’s episode so let’s start
with the basics. What is the little top tax that I was mentioning there? So there
are several, let’s say, inconsistencies in the debate surrounding the topic. It’s not that there wasn’t import tax on small value orders before and now there may be, you know. What existed before was an import tax exemption for shipments between individuals. So if I lived in China and wanted to send you a package worth 50 US dollars or less, you wouldn’t have to pay import tax on it because it would be a transaction between individuals.
It started to happen and gain scale with the pandemic e-commerce, digital boom, is that sellers on these Asian marketplaces started to pose as individuals, sending packages to other individuals in Brazil so that their customers would not pay taxes. At the end of the day, they took advantage of a loophole in the Brazilian legislation and also of failures in customs inspection, which before would only inspect small samples of these packages.
And while the idea of this being little tops is emblematic, we are talking about products that go way beyond that and that are sold three, four times cheaper than in domestic retail.
And Brazilian retailers are the biggest opponents to these East Asian marketplaces, right? What’s their argument here?
Well, Brazilian retailers are complaining for some time now about unfair competition from these Asian platforms, Aliexpress, Shein, Shopee and others. And well, they are right. They say that not even restating the standard import tax of 60% on these purchases would make the situation fairer as products sold by them here in Brazil pay an average tax burden of 109%
This according to the estimates from IDV which is a lobby for retailers So what they want it’s tax symmetry and they are right
So this was all going on unchecked for a while with complaints from local retailers But then everything kind of came into the spotlight in 2023 as the government sought to get involved and take action. And this involved the president and the first lady, right? Remind us what happened there.
Yes, exactly. So early last year, what finance minister Fernando Haddad tried to do was reinforce customs inspection to catch these orders that were falsely being sent as individual to individual. But this move was read by consumers as the government seeking to tax their purchases from Xi’in, Shopee, and what have you. Consumers, including those in favor of the Lula government, decided decided to turn to the first lady, Rosângela Lula da Silva, who’s best known by her nickname,
Janja, to complain about the idea, tagging her on social media and so on. And it worked. Not even, I think, two weeks after Adagi first touched on the topic, the pressure from the first family forced him to back away from the idea.
Right, so this feeds into something that I alluded to in the introduction. The ubiquity of Shein in Brazil is really something to behold. I mean, you can go to some of the remotest and poorest parts of the country and when the post arrives about half of it ends up being these orders from Shein. A measure like this in the US or Europe would probably upset some people from Generation Z. But in Brazil a measure like that could affect an election. You know, these cross-border purchases have become so dear to a large part of the
country’s lower middle and working classes, regardless of their age. So, you know, how did the government seek to negotiate its way around this problem then?
Well, what happened is that Adagi had to change his strategy. So, in the middle of last year, months after the first conflict with the first family, he said that he would increase inspection, as planned, but that companies that joined a new compliance program called Hemessa Conformi and instruct their sellers to declare their orders correctly from import tax on purchases up to $50. And this is the curious thing. Adagi practically created an import tax exemption on purchases of up to $50
between companies and individuals, which didn’t exist before. All platforms, of course, joined the program, and Nadadu ended up foregoing 32 billion reais in revenue until 2027. On the other hand, we now have an idea of how many little tops Brazilians are buying, because now more than 90% of all purchases are now passing through the customs inspection. And the figures are quite high, quite surprising.
The volume of packages tripled between 2020 and 2023. So we are talking about 53 million packages in 2020 and now more than 210 million packages last year. So it increased a lot. Brazilians spent more than 6.4 billion reais on these parcels last year. So, I mean, there’s a lot of little tops, right? The good news in terms of revenue end up going to the states, the government states, with the Federal Revenue Service controlling most of the parcels, the
state governments were able to draw their line on the issue. They decided to tax the purchases with 17% state goods and services tax, the governance for the measure, but exempted the federal government from following the same path. For him, Congress should be the one leading any sort of discussions on this. He also thinks that the compliancy program was decisive to luring Xi into Brazil, and he might be right. The company already has over 300 Brazilian partner factories producing clothes for its marketplace here in Brazil
and plans to begin shipping these products made in the country to other Latin American Also, since the launch of Hermessa Conformi, the compliance program, Shopee has also announced the expansion of its logistic operations. It opened five new distribution centers and now has 11 centers across the country.
And Fabiane, that wasn’t the end of the import tax debate, of course, because we’re back here talking about it. The latest discussion about these cross-border purchases involves electric cars and tortoises and is set to come to a head by the end of this week. Fabiane, explain to our listeners what the hell I’m on about.
Yes, I will try. So a proposal to tax any international purchases, including the small value bonds, was included in a provisional decree on electric cars. This type of move, you know, of including something completely unrelated to a bill into a tax is what we call here in Brazil a jabuti or tortoise. It’s something normally done when legislators want to speed up the discussion around a certain topic and force its approval as it’s linked to this electric cars decree which is an issue of high interest to the government. So that’s the strategy right now, you know, to force the vote, to force the discussion around
the topic. Yeah, so Jabotí is essentially a rider clause that’s kind of unrelated to the content of the original bill. That name comes from a popular Brazilian proverb that says that tortoises don’t climb trees, meaning that if you find a tortoise in the tree, someone put it there.
And I mean, the provisional measure we are talking about, it expires on Friday. So it on first, you know. Lawmakers and especially the House Speaker, Artur Lira, they are using this deadline to force the discussion. But of course, things could go another way. Last week, when reacting to the House Speaker’s decision to put the bill to vote, President Lula said he could and probably would veto the legislation if it was approved. But he also noted that the government could negotiate the matter, you know, it could be
taken out from the provisional measure and discussed separately. Lawmakers are now talking about staggering the import tax on these purchases, that is defining ranges of tax rates depending on the value of the order. But at the time we were recording this podcast, the situation is still up in the air. We don’t know what will happen, you know. What I think would happen is that the House Speaker will likely the taxation of international purchases separately. But I mean, on the other hand, if the bill moves forward, it will likely be approved in the House because, you know, retailers
have got the lawmakers, you know, support for it. The same should happen in the Senate. Congress would overturn any veto Lula makes, President Lula makes. And this might sound paradoxical but I think Lula and Andrade would be okay with that because for them they just don’t want, you know, the government to be seen taking the lead on taxing the small value purchases.
And to round off this conversation then Fabiane, why are Shein, AliExpress, Shopee so popular in Brazil? Why aren’t people buying Brazilian? I mean taking Shein as an example, there’s constant criticism of the quality of these garments. So how can buying from China still be a better deal than buying something Brazilian?
Yeah, so as I said before, things are much, much cheaper in these Asian marketplaces. Last week amid this debate, you know, between government and lawmakers and everything, she disclosed a study by Ipsos that shows that 88% of its consumers here in Brazil earn less than four times the minimum wage, which speaks to Lula’s argument that taxing these platforms would hurt poor consumers and, of course, his voters. We know that there are a series of problems when shopping on these marketplaces, such as counterfeit or low-quality products. Still, the items are so much cheaper that
platforms greatly improved logistical process. So although there are still complaints about products that did not arrive and so on, Brazilian consumers are much more satisfied with their services. And also, they have something that the experts in the sector, the retail sector, call a split purchase model. That is, they found a way of splitting purchases into multiple orders so that they fall within any tax-free zone. And of course, they do that not only targeting Brazilian consumers, but all the markets where they operate. Sellers on Aliexpress and Shopee, for example, they do the same thing with health and fitness
equipment and electronics, for example, shipping them in parts and leaving it up to the consumer to assemble everything at home. Although strange, this static is not considered illegal, you know, by companies or authorities. and they will likely continue to do this even if Brazil decides to tax these orders in some way. This is something domestic players have not yet learned how to do, the split purchase model. So, you can see how they have several advantages over their Brazilian counterparts at this point.
Fascinating stuff Fabiane, thanks so much for sharing your insight.
Thank you, thank you for having me again.
Just hours after we recorded this episode, the lower house of Brazil’s Congress reached an agreement to approve a 20% tax on all international purchases worth less than 50 US dollars. expensive purchases, but a lot more than customers of Asian platforms Shein, AliExpress, Shopee and others were willing to pay. If you like Explaining Brazil, please give us a 5-star rating wherever you get your podcasts. Or better yet, subscribe to The Brazilian Report, the journalistic engine behind this podcast. We have a subscription-based business model and your memberships fuel our journalism
and keep us going and growing. And our work has been recognized for its quality. We’ve won several international awards. In April 2024, the Brazilian report was named the best news website in the Americas for a small or local newsroom by the World Association of News Publishers, WAN-IFRA. And more recently, we won Best Story at the 2024 Digiday Media Awards for our scoop on the attempted hacking of one of Brazil’s Supreme Court justices. To continue doing this work, we need your support so go to Brazilian.report. I’m Ewan Marshall, thanks for listening to one of Brazil’s Supreme Court justices. To continue doing this work, we need your support so go to Brazilian.report. I’m Ewan Marshall, thanks for listening toExplaining Brazil. We’ll be back next week.
Transcribed with Cockatoo
Search
