Proposal backed by Lower House speaker is being discussed under new policy for automotive industry

05/23/2024

---

Presidente Lula — Foto: Brenno Carvalho/Agência O Globo

President Lula said on Wednesday (22) he would veto the end of the import tax exemption on international purchases of up to $50 if it is approved within the Green Mobility and Innovation Bill, known as Mover, Congressman José Guimarães, leader of the government in the Lower House, told Valor. Lower House Speaker Arthur Lira insists on passing the legislation and has postponed the vote. A new attempt to vote on the matter should take place on Thursday (23).

In recent weeks, the inclusion of the topic in the Mover Bill divided the groups in the Parliament and led the vote to being postponed on multiple occasions. Members of President Lula’s Workers’ Party (PT), understand that the end of the tax exemption could generate reactions in the party’s electoral base and hurt the Lula administration if approved. The Liberal Party, former President Jair Bolsonaro’s party, is also against it and proposed the approval of an amendment that would exempt from tax all domestic sales of up to $50. The proposal is considered a “fiscal time bomb” by government supporters and even oppositionists.

In a text message sent on the WhatsApp group of government leaders in the Lower House, Mr. Guimarães said that President Lula is in favor of the approval of the Mover Bill—the country’s new policy for the automotive sector—but is against eliminating tax exemption on international purchases up to $50. Mr. Guimarães confirmed his statement to Valor: “He [President Lula] will veto it [if it is approved].”

Mr. Lira insists on taxation and has received support from prominent Brazilian businesspeople in recent weeks. Fábio Faccio, the CEO of Renner, was in Brasília to meet with Mr. Lira and other Lower House members and present some reasons to support the taxation. “We are not asking for commercial barriers. We’re asking for fair competition. If we also had tax exemption, our products would be sold at half the price and with better quality,” he argued.

In previous weeks, executives from retailers Petz, Leroy Merlin, Riachuelo, and Mercado Libre also engaged in this effort to raise awareness among legislators and the government. “These e-commerce platforms claim that they are helping those with less purchasing power, but they are actually taking away these people’s jobs and the money for social policies by not paying taxes,” Mr. Faccio said.

Valor found that retailers linked to IDV, the main retail association in the country, are hoping that, despite a possible veto by Mr. Lula, it will be possible to bring the import tax back through a debate with the president.

“We have to move step by step, dealing first with the approval of the bill in the Lower House. Then, if the Executive branch resists, we can prove that the tax exemption is harmful to companies and jobs,” said a person familiar with the matter. “One battle at a time.”

President Lula’s opposition to the idea of returning the import tax is not new to retail and industry members and the possibility of a presidential veto did not surprise those who were in Brasília on Wednesday (22) following the matter. The companies had been increasing pressure on Congress and seeking support from the government.

This week, the CEOs of retailers such as Renner, Petz, Marisa, and Caedu sent video and text messages to Lower House members asking for support to eliminate the tax exemption, Valor found.

International marketplaces claim that the exemption for purchases of up to $50 is a global practice that has allowed low-income people to have access to the same benefits as richer people who make purchases on international trips and has generated thousands of jobs in the logistics sector in Brazil.

Furthermore, they argue that the impact on the domestic retail and industry is not as big as the companies say. “The share of international e-commerce platforms would not reach more than 0.5% of national retail,” trade associations Proteste, Free Market Institute, and the Brazilian Association of Transportation Companies wrote in an open letter.

If the exemption is eliminated, the taxation would be a 60% import tax on the products, in addition to the 17% Tax on Circulation of Goods and Services (ICMS) under the Federal Revenue’s Remessa Conforme program. International companies claim that would create a global tax of 90%, making the cross-border market unfeasible.

As an alternative, the Mover Bill rapporteur, Congressman Átila Lira, suggested changing the text to set an import tax of 25% or creating a schedule for levying the tax. However, the idea received no support from the Lula administration. “I’m hoping that it will be voted on Thursday [23] as I don’t want to harm the bill,” the rapporteur said. He pointed out that the government has requested the postponement fearing that an amendment by Congresswoman Adriana Ventura suggesting the extension of tax exemption to the domestic industry could be approved by the House floor.

To legislators, Finance Minister Fernando Haddad advocated for a “joint solution” involving the three branches of government to determine how the taxation of imports below $50 would be carried out.

“The retail and industry segments’ concerns are legitimate but we need to have an understanding between the three branches of government on this issue,” he said at a public hearing in a committee by the Lower House.

Mr. Haddad praised governors Tarcísio de Freitas (São Paulo) and Romeu Zema (Minas Gerais) for the agreement reached in the National Council of Finance Policy (Confaz) to levy ICMS on these imports.

At the end of the hearing, Mr. Haddad told reporters he does see the topic being decided under the Mover Bill.

*Por Marcelo Ribeiro, Raphael Di Cunto, Gabriela Pereira, Estevão Taiar, Adriana Mattos — Brasília and São Paulo

Source: Valor International

https://valorinternational.globo.com/