Taxes on Tobacco Products in Brazil
Tobacco products have become more and more expensive in Brazil as taxation has reached levels that can be considered to be abusive. Learn in this article what are the taxes applying to tobacco products and why these products have become so expensive.
"For a tobacco-free country"
Since 1996, Brazil has a federal law restricting the usage and the advertisement of tobacco products in areas of common use, whether they are public or private. The purpose of the law is to decrease the number of smokers and with this, reduce the number of people who look for the public health system (known as SUS) due to health problems generated by the tobacco consumption.
With this law, it is prohibited to smoke in bars, restaurants, night clubs, schools, malls, grocery stores and all common areas. Some states have chosen to prohibit the smoking in common areas, but have created a particular space exclusive for smokers. In this areas, known as “fumódromo”, it is allowed to smole cigarettes, cigars and cigarillos without bothering the ones who are around them.
Some states, however, have been stricter regarding this law and have prohibited smoking in common areas once for all. They are:
- Rio de Janeiro
- São Paulo
Such initiatives have been taken in order prevent the damages caused by tobacco consumption as they have become a matter of public health.
Why is it so expensive?
In 2012, the taxation over tobacco products raised 50%. It is charged over fine-cut tobacco and applies to cigarillos, cigarettes and cigars. Since April, the minimum price for a pack of cigarettes is of BRL 3,00. This decision has been frequently postponed because the industry argues that it is not possible to increase the taxes and prices of tobacco products as it would enhance the illegal market for cigarettes. However, Brazil has reduced the tax burden over tobacco products between 1999 and 2006 and there was no significant decrease of the smuggling practices.
In 2005, with the approval of a convention for tobacco control (Convenção-Quadro para o Controle do Tabaco – CQCT), that has as a purpose “to protect the current and next generations from the devastating sanitary, social, economic and environmental consequences generated by the consumption and exposure to the tobacco smoke”, the Brazilian government has taken a series of actions, responsibilities and initiatives.
The significant increase on the prices of tobacco products aim to reeducate the population (especially the poorest portion of it, who will have troubles trying to adapt to the new prices) to decrease and even eliminate the smoking habits out of their lives.
The illegal cigarettes market
Brazil is the fourth major tobacco producer in the world, so policies aiming the consumption decrease would directly affect the creation of jobs in the country. However, the Ministry of Health claims that several initiatives are being taken in order to readapt the rural families who work with the production of tobacco.
One of the major problems for the government proposal is the strength of the illegal market for cigarettes in Brazil, that corresponds to 35% of the consumption in the country and it is estimated to cause a loss of US$ 650 million to the federal government every year.
The illegal market for cigarettes increase the consumption as the illegal products are sold at a lower price, forcing the formal market to decrease prices as well.
It is estimated that more than 80% of the cigarettes’ price in Brazil corresponds to taxes. Here are the taxes applied to tobacco products in Brazil. Be aware that the ICMS rate adopted is the one practiced in São Paulo state.
II – Imposto sobre a Importação
The import duty (or “imposto sobre a importação” in Portuguese) applies to the entrance of foreign products in Brazil. It is charged over the importer, the recipient of the international shipping named by the sender, the one who is acquiring the commodity and the bidder of seized or abandoned products.
The rate applied to tobacco products is of 20%.
IPI – Imposto sobre Produto Industrializado
IPI is applied to the output of national goods from the factory, to customs clearance when the product comes from abroad and to public sales. It is a federal tax paid by the industry owner and by the importer of the goods.
The rate applied to tobacco products is of 30%.
“Imposto sobre operações relativas à circulação de mercadorias e serviços de transporte interestadual e intermunicipal e de comunicações” – or simply ICMS -, is a value-added tax that on sales and services and applies to the movement of goods, transportation and communication services, as well as to the supplying of any goods.
Its rates vary from 7% to 25% and the percentage applying over tobacco products in São Paulo state is of 25%.
PIS – Programa de Integração Social
PIS is a federal tax that applies to gross revenues earned by all types of legal entities, including non-profit makers and organizations held by the government.
The rate applied to tobacco products is of 1,65%.
Cofins is the abbreviation for “Contribuição Social para o Financiamento da Seguridade Social” and is applied to the monthly invoicing. It is a state tax paid by the companies who collect taxes based on added-value.
The rate charged over tobacco products is 7,6%, which is the maximum rate for this tax.