Simplifying Drawback Brazil Will Boost Competitiveness of Small Companies

Brazil factory Brazil’s government should issue an administrative rule, before the end of January, simplifying the special import regime known as drawback, a tool that enables exemption from federal taxes on imports linked to an export commitment.

The rule will be issued by the Foreign Trade Secretariat (Secex) and the Secretariat of Federal Revenue of Brazil (SRF).

Since its inception, the drawback applies equally to all companies, no matter their size. However, the bureaucratic demands have led the tax exemption to benefit virtually only the large or medium businesses that have specific departments for affairs pertaining to foreign trade.

With the changes that will be announced, such as simplifying the process for corroborating the inputs used, the special system may include micro and small companies as well.

The administrative rule will regulate paragraphs 12,13 and 14 of Act number 11,945, signed by president Luiz Inácio Lula da Silva in June 2009. The new regulation will reduce the legal requirements, as informed by the press office to the Brazilian Ministry of Development, Industry and Foreign Trade. The sections of the administrative law are still being studied by the Federal Revenue.

The paragraphs mentioned determine that domestic or foreign purchases of goods used or consumed in the manufacturing of exportable products may be exempted from the Import Tax, Tax on Industrialized Products (IPI), the Social Integration Program Tax (PIS) and the Social Security Tax (Cofins). This lifting represents an average of reduction of 30% in production costs, which would greatly increase the foreign competitiveness of Brazilian products.

According to the bill, the drawback will also benefit domestic or foreign purchases, made separately or otherwise, of goods used in repairs, breeding, farming or extraction of exportable products.

The meeting of the requirements for the tax drawback is proved by means of the shipping of goods in the previously agreed upon volumes and figures. However, taking into consideration the exchange rate fluctuation of the currencies involved, paragraph 14 of the rule states that in certain situations, the meeting of the requirements may be done based on the volume shipped (“physical flow”) and in the value obtained from exports, provided that the company gives notice of the variations and that value is added.

Sebrae

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