Travel Markets Insider Newsletter Vol. 16 No. 24 BREAKING NEWS

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Cut in Brazil’s duty free border allowances stuns industry

Outpouring of protests lead to one year suspension of new rates
By John Gallagher

The first stage of the long awaited regulations governing Brazil’s new border stores was finally issued on Monday, July 21, and stunned the duty free operators on the neighboring borders by halving the current allowances on duty free sales on all land and river borders.

Brazil’s Ministry of Taxation’s Ordinance no. 307 unilaterally cut travelers duty free allowance from $300 to $150. Duty free executives were shocked at the news and confusion reigned throughout the region as the new allowance took effect immediately last Monday.

Travel retail operators in Argentina, Paraguay and Uruguay called emergency meetings to discuss how best to handle the lower allowances. Paraguayan newspapers claimed that Paraguay’s President Horacio Cortes went so far as to call Brazilian President Dilma Rousseff to protest the decision. After hours of uncertainty, the Brazilian authorities reversed themselves, and advised that the measure was postponed at least until June 30, 2015.

The Brazilian government argues that the $150 duty free allowance had been agreed upon by the Mercosur governments in 2009.

So what does this mean for the border business in Mercosur? Regional operators say they are faced with three options: The Uruguayan, Argentine and Paraguayan operators have one year to adapt to the new situation; or they can persuade their governments to negotiate with Brazil to reinstate the current $300 allowance – now due to expire at the end of June 2015; or their governments can seek a Mercosur decree to cover and protect duty free sales in the whole region.

Carlos Loaiza, Secretary General of the Uruguay Free Shops Association told Travel Markets Insider, “We are clearly very pleased to note that the new allowance published in Ordinance 307 has been suspended. As we await the legislation on the day to day running of the border duty free shops in Brazilian territory from the Receita Federal (Brazilian Federal Customs Authority), we have already held very high level meetings with all the relevant authorities in Uruguay to ensure that the competitive situation of the duty free shop operators working on the border is defended.

“The immediate objective is to ensure that the temporary suspension becomes permanent and that any new law corresponds to actual practices that have been carried out over the last years. Over the past few days the Association has held several meetings and we are preparing a full agenda to ensure that business on the border can go ahead in a similar way that our member companies have enjoyed in recent years. We are convinced that with the help of all stakeholders the current situation will be maintained, at the very least.”

TMI will communicate developments as they become available.

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