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Tax reform already reshapes logistics strategies

Companies prepare for end of tax incentives in 2033; impact on new projects already visible

 

 

 

 

06/09/2025 

Brazil’s tax reform is beginning to influence corporate logistics strategies for new investments. The prospect of ending tax incentives and changing the point of tax collection starting in 2033 is already dampening interest in new projects in states that currently attract companies through generous fiscal benefits, according to business executives and consultants involved in the transition to the new model.

Among the states potentially affected, from the private sector’s perspective, are Santa Catarina, known for its import-related incentives; Goiás, which supports the pharmaceutical industry; Espírito Santo, which also favors imports and has attracted sectors like automotive and retail; and Minas Gerais, home to one of the most emblematic cases of tax incentives: the city of Extrema.

In Extrema, logistics operators say demand for existing warehouses remains strong, but appetite for new developments is waning.

According to Sérgio Fischer, CEO of Log CP, a developer and manager of logistics and industrial warehouses, clients have said that rental prices in Extrema were a “non-issue” and could be up to three times higher due to the significant cost reduction from tax incentives. Log CP previously owned a warehouse in Extrema but sold it and has no plans to return. “It’s a city with fewer than 60,000 residents and nearly the same amount of warehouse space as Cajamar (São Paulo), which serves Brazil’s largest city,” Mr. Fischer said.

On the other hand, demand is rising for warehouses closer to major consumer hubs such as São Paulo and Recife—a key logistics center for the Northeast—executives report.

Logistics operator Multilog, which has a R$900 million investment plan over the next three years, has decided to allocate more than half of that amount to São Paulo, largely due to the tax overhaul. “We’ve been getting many inquiries from clients who are already looking ahead to 2033. From that point forward, inventory will need to be closer to consumers. A natural realignment will take place,” said CEO Djalma Vilela.

Pedro Moreira, president of ABRALOG (Brazilian Logistics Association), said the reform is already affecting the price per square meter of fulfillment centers, which is rising around São Paulo and Recife. The Manaus Free Trade Zone, which will retain its incentives, is also drawing increased interest from companies, he said.

Indeed, prices are climbing in São Paulo, according to data from Colliers International. In Guarulhos, the average price per square meter for logistics projects reached R$37.80 in the first quarter of this year, a 16.6% increase compared to the same period in 2024. In Cajamar, prices rose 8.5%, to R$31.38. Even in Extrema, prices increased to R$28.65—a 5.3% rise year over year.

According to analysts and executives, the lack of a sharp correction reflects market resilience. Mr. Fischer pointed out that cities that grew thanks to tax incentives won’t become “ghost towns” overnight, as the market will adjust based on demand-driven pricing.

Moreover, a lengthy transition period lies ahead before incentives are phased out, noted Maurício Lima, partner at logistics consultancy Ilos. “No company will relocate while it can still enjoy the benefit.” He emphasized that current impacts are limited to new projects still in the planning stages.

Under the new rules, the transition away from the Tax on Circulation of Goods and Services (ICMS), the main instrument used by states, won’t begin until 2029 and will run through the end of 2032, noted Douglas Mota, a tax partner at Demarest. During this period, a compensation fund will reimburse companies for lost incentives.

Mr. Mota added that the reform’s impact comes not only from the loss of tax breaks, but also from the shift in the tax collection model—from the point of production or storage to the point of consumption. “They’ve tightened the screws on both ends.”

Long-term lease contracts may help smooth the transition. Mariana Hanania, director of market research at consultancy Newmark, noted that Extrema’s growth was driven largely by BTS (build-to-suit) contracts tailored to specific tenants. “These are long-term contracts with tenant guarantees,” she said, adding that new developments in those areas may now be limited.

Simone Santos, partner at consultancy Binswanger SDS, said the long timeline before the reform takes full effect still makes these regions attractive. “We’re still seeing major leases,” she noted, citing the announcement in late May of a fully pre-leased 40,000 square meters warehouse by Fulwood in Extrema.

These locations also offer other advantages, such as strong logistics infrastructure, skilled labor, established industrial ecosystems, and the local economy. Santa Catarina, for example, is expected to see limited impact, according to two executives with operations in the state.

Gustavo Serrão, CEO of Espírito Santo’s port authority Vports, acknowledged that the reform presents challenges for the state but said the government is investing in greater efficiency, and existing infrastructure supports business retention. “There’s an exit barrier. Incentives helped the state build a robust infrastructure, and the integrated supply chain is resilient,” he said. “The challenge now is to use the transition to boost productivity.” He also cited potential financial incentives from state banks to help attract investment.

The impact of the changes will vary across sectors. The most affected will likely be those in which tax considerations weighed heavily in project decisions; typically high-value, lightweight products like pharmaceuticals and electronics, Mr. Lima said. “Heavier products, like large appliances, already leaned more on logistics convenience than tax advantages.”

Some e-commerce firms and import-heavy sectors that traditionally benefited from incentives will also need to rethink their strategies, said Vilson Silva, CFO at ID Logistics.

“In 2033, the impact will be significant. From a logistics standpoint, this will be an improvement. Today, there are some irrational practices, like a client who produces in São Paulo, serves customers in São Paulo, but ships inventory to Goiás for storage, only to bring it back,” Mr. Silva said.

*By Taís Hirata and Ana Luiza Tieghi — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Tax reform group rejects tax breaks for sanitation

Additional tax on sugary drinks reinstated as Congress debates changes

12/17/2024

The tax reform working group in Brazil’s Lower House has proposed rejecting tax breaks approved by the Senate for sectors such as veterinary services, pet health plans, basic sanitation, funeral homes, commercial representatives, biscuits, mineral water, and soccer corporations (SAFs). The group also opted to reinstate the additional excise tax on sugary drinks, such as soft drinks.

The move, anticipated by Valor, aims to lower the standard rate of the upcoming Goods and Services Tax (IBS) and Contribution on Goods and Services (CBS), central pillars of Brazil’s new tax system. The Senate’s version of the bill pushed the rate above 28%, exceeding the 26.5% limit agreed upon by both houses: the more approved exceptions, the higher the standard rate applied to other goods and services.

“Our revised version reduces the standard rate by 0.7 percentage points,” said the bill’s rapporteur, Congressman Reginaldo Lopes. He did not specify the base for this calculation but maintained that improved tax compliance would keep the rate at 25%.

Conversely, the working group accepted all tax benefits for the Manaus Free Trade Zone, which was approved by Senate rapporteur Eduardo Braga, a prominent advocate for the region. However, some lawmakers hope to challenge these benefits when the bill goes to a floor vote, where parties can request individual votes on specific provisions.

These decisions were made during meetings with party leaders and House Speaker Arthur Lira, who unexpectedly scheduled the reform for a floor vote on Monday night. The abrupt move caught many by surprise, including members of the working group, some of whom were not in Brasília. The session was postponed to Tuesday to ensure broader attendance.

Among the Senate’s changes supported by the working group are tax rebates for telecommunications services used by low-income households, reduced rates for diapers (60% discount), bars, restaurants, hotels, and amusement parks (40% discount), and a tax exemption for gratuities up to 15%.

The group also upheld Senate amendments for financial services, including tax breaks for credit recovery and loan guarantees. Additionally, credit-receivable funds (FIDCs) will be taxed under financial sector rules when early liquidation occurs, provided the fund is not classified as an investment entity.

However, the Lower House’s working group rejected Senate proposals for tax cuts on SAFs, veterinary services, funeral homes, extracurricular schooling, and basic sanitation, along with the Senate’s list of discounted medications. Veterinary services and pet health plans will see a 30% rate reduction instead of the Senate-approved 60%, while other sectors will pay the full tax rate. Biscuits, cookies, and mineral water, which received a 60% discount in the Senate, will also be taxed at the standard rate.

The most contentious issue remains the Manaus Free Trade Zone. In the Senate, Mr. Braga pushed for a zero CBS rate on goods and services exclusively for businesses located in the region’s industrial hub. He also extended the deadline for utilizing tax credits from six months to five years and removed caps limiting credit use for non-tech goods. For example, while capital goods previously faced a 75% cap, the Senate allowed full credit utilization for any benefit approved by state law by December 31, 2023.

Amid growing opposition, Mr. Lira and party leaders supported these proposals, but a specific tax benefit for fuel refining in the Manaus Free Trade Zone remains up for debate. If approved, it would benefit Atem Group, which purchased Petrobras’s Ream refinery last year.

The oil and gas sector has voiced strong objections, calling the provision anti-competitive. The Brazilian Institute of Oil and Gas (IBP) warned that exempting certain refineries from taxes would distort the market. “In a sector with high tax burdens and narrow profit margins, this would create a competitive imbalance, as refineries in the Manaus Free Trade Zone would enjoy exemptions while others bear the full fiscal burden,” the IBP said.

Meanwhile, the oil workers’ federation (FUP) and the Amazonas oil workers’ union (SINDIPETRO) condemned the proposal as “blatant opportunism” designed to “favor business allies.”

In response to the debate, Mr. Braga criticized industry federations from São Paulo and Rio de Janeiro on social media. “It is unacceptable for entities like FIESP [Federation of Industries of the State of São Paulo] and FIRJAN [Rio de Janeiro Federation of Industries] to act once again against Amazonas while our development model remains an example of environmental preservation and job creation,” he wrote.

The Lower House also decided to reinstate the excise tax on sugary drinks, reversing the Senate’s rejection. The tax aims to discourage the consumption of goods harmful to health and the environment.

For automobiles, the Lower House proposed linking the excise tax to such as engine power, performance, technological density, local production, and vehicle category. The tax will now apply only to mineral extraction, not exports. The Lower House also prohibited tax substitution mechanisms for soft drinks and cigarettes.

*By Raphael Di Cunto e Marcelo Ribeiro

Source: Valor International

https://valorinternational.globo.com/
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Government delivers first bill to regulate tax reform

Document spans over 300 pages; Lower House speaker expects to pass new regulations before legislative recess

04/25/2024

Fernando Haddad — Foto: Marcelo Camargo/Agência Brasil

Fernando Haddad — Foto: Marcelo Camargo/Agência Brasil

Finance Minister Fernando Haddad presented the first supplementary bill to regulate the consumption tax reform to Lower House Speaker Arthur Lira and Senate President Rodrigo Pacheco on Wednesday. The Ministry of Finance estimates the average rate for the new taxes—to be set later—at 26.5%, potentially rising to 27.3%. Mr. Lira expects to pass the new rules by the start of the parliamentary recess on July 17.

Valor reviewed the 360-page, 499-article bill, which had not been officially filed in the Congress system as of Wednesday night. Among the most anticipated elements by tax experts and business sectors were the definition of a list of 15 staple foods with a zero tax rate, the six types of goods that will be subject to the new selective tax, and the rules about categories included in specific regimes.

The text follows the guidelines of the proposal to amend the Constitution (PEC) passed by Congress last year, which merges six taxes. They will be transformed into CBS (federal) and IBS (of the states and municipalities). These new taxes will have a single federal legislation, no compounding effect, and collection at the destination. Additionally, the bill provides differentiated taxation for products made outside the Manaus Free Trade Zone that compete with those manufactured in the region.

“The country has been waiting 40 years for a solution to the most tangled of Brazilian problems, which is our chaotic tax system, still unfortunately among the 10 worst in the world but will be among the 10 best in the world following the full implementation [of the reform],” Mr. Haddad said after delivering the bill to the legislators.

The regulatory proposal does not set the rates for the new system. Bernard Appy, the extraordinary secretary for tax reform at the Ministry of Finance, said that the estimates would be similar to those previously released by the ministry before the project’s submission.

“The estimate is very close to what was previously stated, with the design ranging from 25.7% to 27.3%, averaging 26.5%. The reference is the average, but the expectation is that it could be even lower,” Mr. Appy said. Regarding the selective tax, there is no information yet, and the rate will depend on future legislation.

The proposal details the rules for products and sectors taxed at a differentiated rate, a highly anticipated aspect of the regulation. The bill lists, for example, 15 items from the basic food basket, including butter, margarine, milk, rice, and soybean oil, specified according to the Mercosur Common Nomenclature—Harmonized System (MCN/HS).

Three other items also have a zero rate, located in another chapter in the text sent to Congress: horticultural products, fruits, and eggs. Thus, the foods for human consumption subjected to a zero rate would be 18.

According to the proposal, one of the guiding principles for selecting the foods to benefit from favored rates “was the prioritization of fresh or minimally processed foods and culinary ingredients, following the recommendations of healthy and nutritionally adequate eating from the Dietary Guidelines for the Brazilian Population, by the Ministry of Health.”

Another guiding principle, the text points out, “was the prioritization of foods primarily consumed by the poorest, aiming to ensure that as much of the tax benefit as possible is appropriated by low-income families.”

The text also sets 14 foods that will have their tax rates reduced by 60%. The list includes meats, fish, mate, natural honey, and pasta.

On another front, the project details the rules for the professional categories that will be subject to specific regimes, with a reduction in rates by 30%. According to the text, there will be 18 categories under this regime, including lawyers, administrators, accountants, and economists. These professionals must be “subject to oversight by a professional council,” according to the proposal.

Additionally, 27 healthcare services will have a 60% reduction in the charges of the new taxes. The list includes psychiatric, dental, physiotherapy, and laboratory services.

The rules for the new selective tax will also likely be a point of contention in the regulatory process, with sectors diverging on which areas should have the additional taxation, aimed at discouraging the consumption of goods considered “harmful to health and the environment.” According to the government’s proposal, this list will include vehicles; vessels and aircraft; tobacco products; alcoholic beverages; sugary drinks; and extracted mineral goods (iron, petroleum, and natural gas).

According to the text, the selective tax will be levied only once on the product, with no possibility of using tax credits from previous operations or generating credits for subsequent operations. The bill also says that the Federal Revenue Service will be responsible for administering and overseeing the new tax.

Another innovation of the PEC, the so-called “cashback reward,” is also detailed in the proposal. The system provides for the return of part of the taxes paid to individuals from low-income families. According to the text obtained by Valor, the tax returns will be directed to families with a per capita income of up to half a minimum wage, provided they are included in the Single Registry for Social Programs (CadÚnico)—a tool used by the Brazilian government to identify and categorize low-income families.

In the bill, the government proposes a general rule of returning 20% of the CBS and IBS for poor families. In the case of cooking gas, there will be a 100% return of the CBS and 20% of the IBS. For electricity, water, and sewage, it is 50% of the CBS and 20% of the IBS. The only products exempted are those subject to the selective tax, such as cigarettes and alcoholic beverages, which will have no reward.

The proposal also foresees the possibility of creating “fiscal citizenship incentive” programs, aimed at encouraging the final consumer to request the issuance of a tax receipt. This initiative already exists in several states and aims to reduce tax evasion—which could lower the general rate. The IBS managing committee and the Federal Revenue Service may use up to 0.05% of the tax revenue to fund these programs. The proposal does not define how these resources will be used—whether with direct returns to the taxpayer, lotteries, or even advertising campaigns.

Following the delivery of the proposal, the government and Congress must race against time to pass the regulation by the end of the year. Before receiving the text, Mr. Lira indicated that he would try to pass the regulation in the Lower House by the beginning of the legislative recess on July 17. “We’ll establish a backward calendar. If you don’t set a date, everything gets pushed to next week, and things keep dragging on,” he said. After the recess, the Lower House is expected to be virtually inactive due to the municipal elections.

The project delivered on Wednesday is the first of a total of three texts to regulate the PEC passed last year. Another supplementary bill is expected to be sent after the International Workers’ Day holiday to address the managing committee of the new taxes. There is also a need for a statute law to address the compensation fund for the states and companies.

Mr. Lira said that, if the government delivered the reform on Wednesday, he would gather the party leaders to decide whether to appoint two rapporteurs directly in the plenary or create two “small” working groups, with five or six legislators each. According to him, choosing a single rapporteur without forming a working group might be problematic because “many competent people want to participate.” He did not indicate who the possible names might be.

*Por Jéssica Sant’Ana, Raphael Di Cunto, Marcelo Ribeiro, Beatriz Olivon, Guilherme Pimenta, Estevão Taiar — Brasília

Source: Valor International

https://valorinternational.globo.com/
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