Tax cuts on imports will not reach the consumer.

Wellton Maximo
Reporter from Agência Brasil

Brasilia – The reduction in import taxes, sanctioned last Wednesday (9) by President Dilma Rousseff, will make purchases of products from abroad 3% to 5% cheaper. This cost reduction, however, will hardly be passed on to the consumer because of the high dollar and competition with national products.

According to Luís Celso de Sena, a specialist in special regimes at the financial services department of Thomson Reuters, importing companies are experiencing reduced profit margins. He stated that, in many cases, prices were not adjusted when the US dollar exchange rate rose, even though import costs increased.

Even with the dollar's fall last week, the expert doesn't believe the change in taxation on imported products will reach the consumer. "Firstly, there's a culture of businesses not passing on cost reductions. In that case, the business owner decides to offset the benefits against other costs that have increased," he explained.

The removal of the Tax on the Circulation of Goods and Services (ICMS) from the calculation base of the Social Integration Program (PIS) and the Contribution to Social Security Financing (Cofins) on imported goods was published in Official Gazette on Thursday (10). The change is included in Law 12.865, which, among other novelties, reopened the special installment plan for debts with the Union known as Refis da Crise and instituted inheritance in permits for taxi drivers throughout the national territory.

The change in the import taxation regime, however, will only apply to future transactions and to companies that modernize their accounting systems. If importers do not invest in technology, purchases from abroad will continue to be taxed under the old system.

“This is undoubtedly a factor that will pressure companies to modernize. Not only importers, but companies in general, will have to invest in accounting technology. Even non-importing companies will need to modernize to remain competitive with imported products,” says Sena.

The debate regarding the inclusion of ICMS (Brazilian state sales tax) in the calculation base for PIS/Cofins (Brazilian federal social security contributions) has dragged on in the courts for decades. The Federal Revenue Service applies the tax rate to the price of the merchandise, but this value incorporates the ICMS. Companies have alleged double taxation. In the case of imported goods, the... The Brazilian Supreme Court (STF) ruled in March that ICMS (a Brazilian state tax) should be removed from the tax base.But only for imported products.

The coordinator of Taxes on Production and Foreign Trade, João Hamilton Rech, clarifies, however, that the March decision only applied to companies that appealed to the Supreme Court. “The courts performed a diffuse review of constitutionality, which benefited only those who were part of the process. Now, the exclusion will apply to everyone, but only to future transactions,” he explains.

According to Rech, the government will not lose money by removing ICMS (a Brazilian state tax) from the tax base because the tax was already being refunded through tax credits, where the company submits invoices and is subsequently reimbursed. However, the reimbursement process can take anywhere from a few months to two years.

With regard to domestic products, which are also subject to ICMS (a Brazilian state sales tax), PIS/Cofins (a Brazilian social security tax), The government created a special installment plan in Law 12.865.However, companies will have to drop any lawsuits in order to be eligible for refinancing with discounts on fines and interest.