Government extends deadline for exports under the drawback regime

Provisional Measure No. 960, published in the Federal Official Gazette on Monday May 4th, authorized the Foreign Trade Secretariat (Secex) of the Ministry of Economy to extend the tax incentives scheme (known as the special customs regime for drawback) for Brazilian companies engaging in ​​foreign trade, for an additional year and on an exceptional basis. The scheme was due to end in 2020.  The drawback scheme relieves taxes on imports and domestic purchases of inputs that are to be used in goods that will be exported.

The measure is part of the initiative adopted by the federal government in view of the impact of Covid-19 on the Brazilian economy. A reduction or stoppage of activities considered non-essential, together with the prospect of decreasing external demand for industrialized products – which represent about 75% of exports supported by drawback -, have the capacity to put a stop to these exports if the scheme is not used.

A survey carried out by Secex points out that of a stock of 3,356 drawback concessions that are due to end in 2020, there are approximately US$23 billion in exports committed to the regime that has not yet happened, which justifies the decision made by the government. If exports did not take place within the period originally established in the concession acts, the exporting companies would be considered to be in default under the regime and would have to pay the suspended taxes with the due legal additions.

According to data from Secex, in 2019 US$49.1 billion were exported using the drawback mechanism, which represents 21.8% of Brazil’s total foreign sales during this period. Companies using this scheme (around 1,760 companies) include a diversified list of productive sectors, amongst which are iron ore, frozen chicken, cellulose, chemicals, and automotive.

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