Tax on purchases up to US$50 can offset payroll tax relief

Charging Import Tax on purchases of up to US$50 on foreign websites may be enough to compensate for the government’s loss of revenue due to the payroll tax relief. This is what a study by Fiemg, which represents the industry in Minas Gerais, indicates.

Last year, the government reported that it would lose R$18.4 billion in 2024 with the payroll tax relief. It would be R$9.4 billion with the extension of the benefit for 17 sectors of the economy and R$9 billion with a discount on the social security contributions of part of the municipalities. But the Ministry of Finance also released other estimates, without further details: it even spoke of a loss of R$25 billion, then R$20 billion and, later, R$16 billion.

Meanwhile, Fiemg projects that the tax on online purchases could guarantee between R$14.6 billion and R$19.1 billion for federal coffers. The estimate considers a 28% Import Tax charge on purchases up to US$50, including shipping. According to the federation, in 2022 Brazilians purchased R$68.2 billion in low-value products on foreign platforms such as Shopee, Shein and AliExpress.

Today, purchases of up to US$50 are exempt from federal tax, in the case of websites participating in the Remessa Compliance program. Transactions of more than US$50 already pay federal tax of 60%. Other than that, all purchases – above or below US$50 – pay state ICMS of 17%.

At the same time as they defend the extension of the tax exemption, industrial and retail businesspeople have been pressuring the government for months to end the exemption on low-value imports. They argue that the measure generates unfair competition, as national products are taxed. Vice President Geraldo Alckmin (PSB), Minister of Development, endorses the business community’s complaint and has already publicly defended the tax collection.

Taxing small value purchases is one of the alternatives considered by the Ministry of Finance if it is unable to reinstate the payroll. The issue is that technicians predict much lower revenue than estimated by Fiemg. In a technical note attached to the 2024 Annual Budget Bill (PLOA), the Federal Revenue projected gains of just R$2.8 billion with the 28% rate. The simulation considered a 30% drop in low-value imports, caused by taxation. If the reduction in purchases reached 70%, revenue would be limited to R$1.2 billion, according to the same note.

The president of Fiemg, Flávio Roscoe, says that the Federal Revenue underestimated the impact of taxation and does not consider that the consumer can replace imported products with national ones. “If consumption on these sites drops by 50%, which I don’t believe will happen, revenue increases, but not that much. There will be an activation of internal consumption, which will raise more revenue. There are two movements”, said the businessman, according to newspaper “O Estado de S. Paulo”.

The Fiemg study predicts the following impacts if the government starts to impose a 28% tax on online purchases of up to US$50:

1. If there is no drop in imports, revenue from these transactions would be R$ 19.1 billion;
2. If imports fall by 10% because of the new taxation, the revenue would be R$17.2 billion. And an equivalent increase in national production would generate another R$900 million in taxes, leading to a total gain of R$ 18.1 billion to the government;
3. With a 30% drop in imports, revenue from online purchases would amount to R$13.4 billion. Another R$2.7 billion would come from increased national production (total impact: R$ 16.1 billion);
4. If the drop in imports reaches 45%, the tax on low-value imports would guarantee R$10.5 billion. In parallel, Fiemg forecasts revenue of R$4.1 billion with a supposed increase in national production (total impact: R$ 14.6 billion).

Government may give up on payroll reimbursement

At the end of 2023, President Luiz Inácio Lula da Silva (PT) issued a provisional measure establishing a gradual repayment of the payroll from April onwards. The MP responded to the Minister of Finance, Fernando Haddad, who is looking for money to meet the fiscal target.

The decision caused great repercussion among the sectors that benefited from the tax incentive and among mayors of small and medium-sized cities, who would receive a discount on their social security contributions. A People’s Gazetteas a communications company, was among those benefiting from the exemption.

The measure also contradicted Congress, which had extended the benefit until 2027 and then overturned President Luiz Inácio Lula da Silva’s (PT) veto of the project by a large margin.

Parliamentary fronts are putting pressure on the president of the Senate, Rodrigo Pacheco (PSD-MG), to return the MP without analyzing it. The Novo party filed a lawsuit with the Federal Supreme Court (STF) against the measure, which should only be analyzed after the judicial recess.

Pacheco and Haddad met on Monday night (15) to discuss the matter. They did not speak to journalists after the meeting, but behind-the-scenes reports indicate that the government tends to revoke the MP for the reinstatement.

However, although it can leave aside the payroll issue, the Treasury must insist on other points that were in the same MP: the extinction of the tax benefit for the events sector (Perse) and the limit on tax compensation for companies that they beat the government in court.

According to the government leader in the Senate, Jaques Wagner (PT-BA), new directions should be decided after the end of the legislative recess.