Brazil on Wednesday eliminated its federal import tax on small overseas parcels, moving in the opposite direction from US and European Union efforts to close a loophole that saw such Chinese retail giants as Shein and Temu expand rapidly.
The elimination will hurt the country’s tax base, but the levy on lower value shirts, electronics, toys and kitchen gadgets ultimately proved too unpopular among Brazilians ahead of the October 4 presidential election, forcing Brasilia to back down.
In an apparent attempt to minimise media exposure over a domestic scandal involving a bank recently closed by local authorities, which has implicated several of his allies, Brazilian President Luiz Inacio Lula da Silva has opted not to hold a signing ceremony for the legislation negotiated over weeks with Congress.
But in a video posted by his campaign on social media last week, he commented on the initiative, stating that its approval was a matter of social justice.
“The upper-middle class travels abroad, spends 2,000 dollars, and pays no tax. Why is it that when a person from the favelas ... buys something for 50 dollars, they want to tax them?”
“It is simply a matter of justice ... so that the Brazilian people can buy the things they need without anyone bothering them,” the president said.
Favelas are dense informal urban settlements often built on steep hillsides.
The country received 28.36 million international parcels in June, the highest figure on record and 118 per cent more than a year earlier, according to the federal tax authority. June was the first full month without the tax, against a monthly average of 15.4 million in the first four months of the year.
The law will effectively end a 20 per cent charge on orders worth up to US$50.
Consumers have not paid it since May, when Lula scrapped it by provisional measure, an instrument that takes legal effect on publication but expires unless Congress ratifies it.
The Senate approved the text on September 3 in a symbolic vote, hours after the lower house and five days before the deadline.
Known in Brazil as the taxa das blusinhas, or the little-blouses tax, and abroad as de minimis, the nickname came about because the charge fell hardest on cheap clothing, phone cases and household goods bought by poorer consumers.
The levy applied to orders placed on platforms certified under Remessa Conforme, a voluntary scheme whose members collect all taxes at checkout in exchange for faster customs clearance. Its largest members are the Asian-owned platforms Shein, Shopee and AliExpress.
The South China Morning Post is owned by Alibaba, which also owns AliExpress.
However, removing the federal charge does not make the parcels tax-free, because state value-added tax of 17 to 20 per cent still applies to every international order.
The exemption also stops at the threshold, as orders between US$50.01 and US$3,000 still pay a federal rate of 60 per cent, with a US$30 discount on the tax owed. That means consumers pay US$30 in federal tax on a US$100 shipment: US$60 at the 60 per cent rate, minus the US$30 discount.
Washington closed its door, Brasilia opened one
The United States ended its US$800 de minimis exemption for goods from mainland China and Hong Kong in May last year, then suspended it for all origins in August.
The European Union has moved to bring forward removal of its own 150 euro (US$175) threshold.
The effect on the platforms was immediate, with Temu’s monthly users in the United States falling 30 per cent and Shein’s 12 per cent in the weeks after the change, according to Sensor Tower.
In the second quarter of last year, 90 per cent of Temu’s 405 million monthly users were outside the United States, HSBC found, with growth concentrated in poorer markets including Latin America.
Brazilian industry groups have argued for more than a year that inventory shut out of the United States would be rerouted to markets that stayed open. Customs authorities publish parcel volumes but no breakdown by origin, so the Chinese share of the June surge cannot be established officially.
Brazil created the charge in August 2024, after retailers argued that untaxed parcels undercut local production. It raised about US$925 million in its first full year.
Lula reversed course on May 12, five months before a presidential election in which he is seeking another term.
The tax reached the statute book as an amendment to an unrelated bill on green vehicles, pushed by retail lobbies. Lula opposed it in public but signed the law in June 2024 without vetoing that clause, after his government negotiated the rate down from the 60 per cent Congress had wanted.
Former finance minister Fernando Haddad said the president never wanted the tax and had threatened to veto it.
The finance ministry estimated the exemption would cost about US$360 million this year and close to US$1.8 billion by 2028, at a time of fiscal weakness.
Retailers say the field is tilted
A joint congressional committee approved a report by Senator Leila Barros on September 2, adding the oversight industry had demanded as the price of passage.
Barros contrasted the levy with the tax-free allowance of up to US$1,000 for returning travellers, saying that taxing parcels heavily while preserving it for inbound passengers protected wealthy consumers and burdened the poor.
The finance ministry must assess the policy in November and every six months after, covering employment, competitiveness and revenue. Platforms must also trace foreign sellers and flag under-invoicing and the artificial splitting of orders.
The National Confederation of Industry, which had lobbied Congress to reject extension of the under US$50 exemption measure, said the change favoured foreign manufacturers over Brazilian producers. The heaviest impact would fall on small firms, it said.
The Brazilian Textile and Apparel Industry Association called the repeal deeply flawed. “It is unacceptable that Brazilian companies bear a heavy tax burden, very high real interest rates and regulatory costs,” it said, while foreign competitors were given better access to the same market.
About 80 per cent of garments sold in Brazil fall below the US$50 threshold, it estimates.
By the calculation of that association and the Brazilian Textile Retail Association, taxes levied at every stage of a domestic garment’s journey from factory to shop floor can reach 90 per cent of its value. Asian platforms selling the same item now remit only the 17 per cent state tax, the two said in a joint statement.
AliExpress countered in May that the repeal broadened access to brands unavailable at home. Shein said it was updating its systems and Shopee said it was following the law. Temu has not commented at any stage. The Chinese embassy in Brasilia did not respond to a request for a comment.
Brazil’s tax reform will bring the parcels back into the federal net from 2027, through a new contribution on cross-border purchases of any value. The exemption approved this week therefore has a defined end date. -- SOUTH CHINA MORNING POST
