Industry accuses government of “tax fraud” for exempting tax on purchases up to US$50

The Brazilian footwear sector filed a lawsuit with the Federal Supreme Court (STF) against the Ministry of Finance for promoting a type of “tax fraud” with the Remessa Compliance program, which exempts import tax for purchases up to US$50 from international retailers that comply with some taxation rules. The industries ask that the measure be suspended until the merits of the action are judged.

The Conform Remittance program came into effect in August and mainly benefits sites such as Shein and AliExpress, widely used by Brazilians to purchase various products, such as clothing items, toys and miscellaneous items. However, Brazilian traders and industrialists claim that they are harmed, as they do not benefit from exemptions from other taxes – which creates unequal competition, according to the president of the National Confederation of Industry (CNI), Robson Braga de Andrade, in a meeting with the President Luiz Inácio Lula da Silva (PT) in July.

In the petition filed on the 27th and published by the STF this Tuesday (9), the Brazilian Association of Footwear Industries (Abicalçados) and the Brazilian Association of Component Companies for Leather, Footwear and Artifacts (Assintecal) state that the Ministry of Finance would not have the power to discretionally change the Import Tax rates.

They also argue that the Remessa Compliance program violates the principle of tax equality, mainly in relation to industry and national retail, as no tax benefit was granted with the exemption from import tax on similar products produced in the country.

“To a large extent, the exemptions then taken advantage of by individuals in international e-commerce are the result of blatant and widespread tax fraud, capable of circumventing customs controls and frustrating federal revenue collection on imports. On the other hand, retailers and industries located in Brazil, whether small, medium or large, that comply with all tax legislation, must collect taxes on any and all sales made, therefore having no benefit for paying and following the rules”, says the petition filed with the STF (see in full).

The two associations state that, with “quite certainty”, Brazilian consumers who make purchases at international retailers “under the concept of exemption” are experiencing a “culture of fraud itself”.

According to the petition, international retailers earned R$1.8 billion from footwear sales in Brazil last year, which corresponds to almost 20% of the total online retail of this product in the country. Which, the associations say, directly affects the creation of jobs in industries.

“The natural consequence is that, based on the Job Generation Matrix (BNDES, at 2022 prices), it is estimated that for every R$1 billion that the national footwear industry stops producing corresponds to the absence of generation of 8.5 thousand jobs directly, 6 thousand indirectly and 1.8 thousand through the income effect, all due to commercialization without due tax equality to which e-commerce platforms should be subject”, they state.

And they conclude by highlighting that there is “commercial disloyalty” on the part of the Ministry of Finance, which causes national industry and retail to continue “losing competitiveness that has long been tarnished, especially due to the reprimand of domestic consumption motivated by high rates of interest rates, the lack of credit, high unemployment rates and, finally, the most diverse inflationary factors that are concomitant today”.