Dear readers, an "exceptional" year is coming to an end, a more difficult year for some sectors than for others.
We began 2024 by receiving, for approval, PLP 68/2023, intended for the implementation of tax reform, more directly the IBS and CBS, which result in the VAT (Value Added Tax), which will affect everyone: industry, commerce, services, and consumers; and PLP 108/2023, which will implement the Tax Reform Management Committee, which will oversee how all tax revenue will be managed and distributed, audits, and other governmental attributes; this committee has many controversial issues to be addressed.
We will avoid going into detail about the tax reform here, especially since, after PLP 68/2023 was worked on by numerous parties in the Chamber of Deputies, including all the work of lobbyists and interest groups, each seeking to defend their sector, not always in line with the country's interests, the report was approved and sent to the Senate, with a projected VAT of 26.5%, resulting from all the modifications, reductions, and exceptions introduced in the bill. It is worth remembering that when the tax reform began, the estimated VAT was around 22%.
Now, during the Senate proceedings, there is already talk of a VAT exceeding 28%, logically due to more exceptions and adjustments, always justified. We will have the highest VAT in the world, as far as we know, surpassing that of Hungary, which is 27%. Furthermore, a careful, in-depth reading of Bill 68/2023 shows that there is no limit to the VAT, which could exceed 28%, and only after the implementation of the tax reform is finalized in 2032 will the VAT rate be verified and a bill created suggesting the removal of exceptions and the elimination of imbalances, aiming to reach 26.5%. Therefore, it is difficult to imagine that after years of implementing the tax reform and excess revenue, or, let's say, revenue outside the planned percentage, there will be a significant correction and reduction. Let's wait for the impacts on the economy and, especially, on retail.
Moving into 2024, we encounter another battle, exhausting but not yet concluded, regarding the reinstatement of Import Tax on cross-border sales of small value goods. It was an intense struggle, with dozens of retail associations and institutes presenting technical and social arguments to Congress and the Executive branch about job losses, as well as initiatives before the Judiciary, specifically the STF (Supreme Federal Court), to reinstate the 60% tax that had been reduced to zero. One of the most consistent studies commissioned by the IDV (Institute for Retail Development) from the IBPT (Brazilian Institute of Tax Planning) confirmed what everyone knew and knows: the average tax burden in the supply chain up to the consumer is over 90%. Therefore, the battle is not over. We must evolve, since the approved and currently in effect system results in a tax burden of 44.6% (composed of 20% Import Tax + 17% ICMS standard tax). It's easy to conclude that, despite some improvement, we're only halfway there and have yet to achieve tax equality. This cross-border issue still has other important, unacceptable points, such as the entry of imported products without certifications. These are the same certifications that are required in the domestic market, with heavy penalties for non-compliance.
The two topics discussed above, tax reform and cross-border trade, would already be enough to demonstrate how much energy is required to work and do business in Brazil; however, another topic, also very relevant to the economy, then emerged: betting.
Gambling has drained billions of reais from circulation in retail, services, education, and other sectors, generating high public health expenses for treating gambling addiction and harming the well-being of thousands of families. The amount wagered reached approximately R$ 90 billion in 2023, and the forecast is R$ 200 billion in 2024. Many studies have been conducted among the population, and none have shown benefits from the existence of gambling, only negative consequences, noting that these studies included electronic casinos and illegal lottery games.
The Ministry of Finance's regulations for the betting industry have been mild and have little impact, leading organized civil society to call for the repeal of the law that establishes electronic games in Brazil. For example, the tax to be paid by betting companies is only 12%, one of the lowest rates ever seen for any business in the country, and should be much higher compared to addictive products such as tobacco and alcohol, which exceed 60%. It's difficult to understand why such a benefit exists. There are so many real arguments for repealing the betting law or, at least, for having adequate regulation, that this article would become far too long. The fact is that, at the moment, the matter is before the Supreme Federal Court (STF), which has already ordered some urgent corrective measures. And, if you listen to the population, according to a Datafolha survey published on November 24, 2024, in the Folha de S. Paulo newspaper, 65% of Brazilians believe that betting should be banned and 71% reject betting advertisements. The same research revealed that most betting companies use an affiliate marketing model, in which influencers promote bets and earn commissions based on the amounts lost by players; in other words, the more the consumer loses, the more the affiliate earns.
It should also be noted that there are two Parliamentary Commissions of Inquiry (CPIs) on betting currently underway in the National Congress. There is hope that the betting issue will have a resolution that is appropriate for the Brazilian people.
Notice that just three issues mentioned above—tax reform, cross-border trading, and betting—show how challenging 2024 has been for the retail sector, which is our focus in this article. The retailer is a gladiator, always participating in battles to improve their business, a creative optimist who faces high interest rates and a profusion of new laws and regulations that constantly emerge, forcing them to cope with increasing expenses. Even so, they don't give up; they have a market and customers to serve and seek opportunities to create new businesses, improve customer service, and increase productivity, certainly providing progress and well-being to society.
This article could mention dozens of legal and operational obligations to which retailers and businesses in general are subject, and among the many requests we could make to the country's leaders for the new year, I would highlight one in particular: make Brazil a simpler country to do business in.
