Custo Brasil makes industrial products more expensive by 25.4%, says Fiesp study

A study by the Federation of Industries of the State of São Paulo (Fiesp) and the Center of Industries of the State of São Paulo (Ciesp) released this Thursday (8) shows that the so-called Custo Brasil increases the cost of national industrial products by 25.4%, in average.

The creation of a Value Added Tax (VAT) as part of a tax reform would be one of the ways to reverse this scenario, defend the entities.

To reach this result, the study compares the difference in production costs between a company in Brazil and another with similar characteristics operating abroad.

The 15 main Brazilian trading partners were considered: China, United States, Germany, Argentina, South Korea, Japan, Italy, France, Mexico, India, Spain, United Kingdom, Switzerland, Chile and Canada.

The group is equivalent to three quarters of the list of imported industrial goods and accounts for 72% of the world’s Gross Domestic Product (GDP).

The survey then lists points that differentiate Brazil from this group of countries.

Taxation is the item that, by itself, had the greatest impact on raising the prices of Brazilian industrial goods: 13%.

The country’s tax burden was, on average, 33.4% of GDP, while in the sample of countries this figure was 26.4%.

Next, interest appears, with a weight of 6.1%.

Here, the entities considered both the weight of the Selic (the basic interest rate) and the rates embedded in financing from banking institutions.

From 2008 to 2019, the average real interest rate was 4.2%, higher than the 0.2% in the 15 countries in the sample.

Raw materials and energy (3.7%), logistics (1.5%) and extra charge with payroll benefits (0.8%) are also cited as items that contribute to the Brazil Cost.

The entities argue that only the implementation of a VAT, eliminating taxes considered irrecoverable and reducing expenses with bureaucracy, would have the potential to lower the Brazil Cost with taxes from 13% to 4.9%.