Already beset by a severe recession and a currency exchange rate vs. the U.S. dollar that has seen the Brazilian real shrink in value by nearly 50 percent, year over year, tour operators and travel agents, as well as the country’s tour and travel industry in general, are having an apoplectic fit over the decision by Brazil’s federal government not to renew a tax exemption on bank transfers/remittances of funds abroad. The action, which ends a policy of exempting international bank transfers of up to 20,000 reals ($5,000 at the current exchange rate) from a 25 percent levy on one’s income tax return, was given little notice when it lapsed at the close of business on Dec. 31, 2015. The exemption, which was approved by Brazil’s Department of Federal Revenue (it is commonly referred to as Receita Federal), had been in effect since 2011.
Originally, the revenue measure was designed to help send money to students and other Brazilians abroad, and it proved to be a boost to the outbound tourism industry as well.
As it turns out, individual travelers rarely have occasion to effect a transfer abroad in order to make travel purchases because they make such purchases at home. This tax is levied on full packages that include air, lodging, and excursions operated by Brazilian tour operators and those offering installment packages—because hosting providers and tours offered by these operators are paid by international bank remittances.
As the travel trade began to realize that the 25 percent tax would impact tour and travel products purchased from travel suppliers and travel wholesalers abroad, they began to howl.
“It’s one more absurdity that befalls Brazilians,” said Jose Mauricio Miranda Gomes (left), the president of the Brazilian Association of Travel Agencies (ABAV), Minas Gerais section.
“Taxation of 25 percent on an industry that has average gross margin of 10 percent will have to be passed on to customers,” complained Rafael Romeiro, director of FVO Travel, a Belo Horizonte-based tour operator, told a newspaper, adding, “This thwarts the business of tourism in the country.”
According to Romeiro, at a meeting in early December between the tourism sector and the Ministries of Tourism and Finance, an agreement was reached that the tax would be 6.38 percent—this is the same rate imposed on individual credit card purchases abroad—instead of 25 percent.
How Did it Come to This? What’s the Outlook for Reversing the Decision? For those not familiar with what’s been taking place in Brazil that would deflect attention from these developments, the explanation is fairly simple. The government of President Dilma Rousseff, whose popularity is currently at a record low and has heard calls for her impeachment and removal from office, has been preoccupied with a massive and messy scandal involving bribes and corruption at Petrobras, the nation’s state controlled oil producer.
There has also been consistent and regular questioning in the news media over the cost of projects connected to the 2016 Olympic Games that will be hosted this summer by Brazil. So, the absence of any focus on the 25 percent tax—even by the Brazilian trade press—seems understandable.
Now that the issue is receiving considerable attention, there is speculation that the exemption from the tax could be reinstated. Ricardo Freire, a popular travel industry editor (www.viajenaviagem.com ) and blogger, recently wrote an extensive commentary on the tax and its impact on the tour and travel industry, but told readers, “It is quite likely that this tax will be revoked.”
And Celyta Jackson, vice president of RDP, Inc., a Miami-based global marketing and communications firm who has extensive experience with the Brazilian market (she was also once vice president of tourism for New York City & Co.), told Inbound that, aware of what the action by the Internal Revenue Service, top government officials have indicated that they favor a renewal of the tax exemption.
“I foresee attempts at delaying payments or paying via corporate credit card until the exemption fiasco is sorted out,” she told us, adding, “The Brazilian Congress and Senate are in recess until Feb 2. There is speculation that the measure could be passed by March 8—after Carnaval of course. Nothing happens in Brazil until after Carnaval.” (Carnaval dates are Feb. 5-9.) For up-to-date information, those interested can contact Jackson via celyta@gmail.com.
Nicely done Tom!
I’ll be monitoring the situation closely.