Brazil loses R$94 billion in cigarette taxes in ten years – 12/26/2023 – Market

The main commodity smuggled from Paraguay to Brazil, cigarettes caused the country to fail to collect R$94.4 billion in taxes over the last 11 years.

The illegal cigarette market, which accounts for 4 in every 10 packs consumed in Brazil, is made up of brands produced in the neighboring country and that enter illegally, as well as products manufactured by Brazilian companies that do not pay taxes.

Data from the FNCP (National Forum Against Piracy) show that smuggled cigarettes represented 33% of the market in 2022, while those manufactured in Brazil and which evade taxes accounted for another 8%.

Although this 41% is a lower rate than in previous years, the sum of the accumulated loss is very damaging for the Brazilian market, according to the president of the FNCP, Edson Vismona.

In 2018, these two groups of cigarettes accounted for 54% of the market, a figure that rose to 57% the following year — the highest percentage in the historical series since 2012.

The closure of factories in Paraguay during the pandemic caused production to fall: illegals represented 49% in 2020, 48% in 2021 and reached 41% last year.

According to the FNCP, evasion caused by smuggling amounted to R$8.3 billion last year alone, for tax revenue that reached R$15.9 billion.

In the record year for foreign participation in the domestic market, 2019, the amount reached R$12.7 billion in evasion (R$16.26 billion, adjusted for inflation).

“Crime has become more sophisticated and criminal organizations are taking up space, including with ‘mules’ to transport small parcels. This will be encouraged by the decision we had in the STJ, that the seizure of up to a thousand packs is considered a trifling, insignificant crime What will happen, the immediate result, is that they will use more people to reduce the loads and, with that, free them [não serem presas]”, said Vismona.

He refers to a September decision by the Third Section of the STJ (Superior Court of Justice) which understood that the principle of insignificance is applicable to the crime of cigarette smuggling when the total seized does not exceed one thousand packs.

Large seizures are more frequent in the country and occur mainly in trucks that arrive in Brazil via the land border in the region of Guaíra (PR). Foz do Iguaçu is less used for large loads because of the greater difficulty in crossing the Paraná River with goods.

“Guaíra accounts for more than half of the cigarettes that are seized in the country”, said the superintendent of the PRF (Federal Highway Police) in Paraná, Fernando César Oliveira.

From January to November, 31.1 million packs were seized in the region, which is equivalent to 52.9% of the country’s 58.7 million.

On November 16, 600,000 packs of cigarettes were found by the PRF in a twin-train trailer in Alto Paraíso, northwest of Paraná. Eight days later, a truck with 250,000 packs was seized in Nossa Senhora das Graças, in the northern region of Paraná.

On November 30th, in Guaíra, on BR-163, another 150 thousand packs and 300 kilos of pesticides were discovered in a truck. Two people were arrested.

Two of the Paraguayan brands were among the five best-selling in Brazil last year, according to Ipec Intelligence: Eight, with an estimated 12% of the market, was the second most sold, while Gift was in fourth position, with 9%.

Eight has strong penetration mainly in São Paulo, with 32% of the market, and in Paraná, with 20%. Other Paraguayan brands easily found in the Brazilian market are Bill, Fox, Euro, San Marino, Palermo, Record, Meridian and Vila Rica.

For Vismona, the main problem involving this dispute is the tax issue, which causes the price difference to be very large between Paraguayan and national products.

“They produce around 65 billion cigarettes a year and consume 2 billion, the rest is all smuggled into the region, especially into Brazil, which is the big market. […] In Paraguay you have taxes from 13% to 22% and, in Brazil, from 70% to 90%, depending on the ICMS.”

As a result, low-income consumers go after the cheapest products, which are counterfeit — be they football club shirts, sunglasses, branded clothes or toys — or those that enter Brazil illegally.

The average price of national cigarette brands was R$8.18 last year, compared to R$5.08 for Paraguayans.

On the streets of Ciudad del Este, vendors offered Sheet packages with ten packs of different brands for R$20, or R$2 per pack. For large batches, they offered delivery to hotels in Foz do Iguaçu.

The report questioned the Paraguayan embassy about the tax regime adopted for cigarettes and whether there is any government discussion to change taxes, but there was no response until the publication of this text.