Impact of tax reform on logistics networks

The planning of logistics networks in Brazil is a recurring theme here on our blog. O Bernard, for example, has already discussed the subject, citing the factors that influence decisions about the positioning of installations, costs related to operations and service levels related to meeting customer demands. In this context, some changes in Brazilian legislation that are being discussed at the federal level may significantly influence the factors that underlie important decisions regarding logistics networks.

The Tax Reform, under discussion by the Federal Government, aims to simplify Brazilian tax legislation, notoriously one of the most complex in the world. Still in March 2017, it is intended to approve changes to the PIS, which would no longer have about thirty rates and would have only two. This change would be made through a provisional measure, to speed up the process. PIS represents 4% of federal revenue, while Cofins represents 16%. Due to this difference, the Cofins will be modified after the PIS, to guarantee that there will be no reduction in collection.

These changes are still planned for the first half of 2017, but the change that will cause the greatest logistical impact will occur in the second half: the simplification of ICMS (Tax on Circulation of Goods and Services). Currently, ICMS is charged by the states, with rates that vary between 17% and 25% within the states and between 7 and 12% between them. The government's goal with the reform is to put an end to the tax war, creating a single interstate rate of 4%. This proposal to reduce rates, to be approved, must pass through the Senate.

With the establishment of a single ICMS rate, a series of logistical impacts must occur. With the end of the interstate tax benefit, companies will no longer be encouraged to practice the "logistic insanities" that exist today, when comparing the benefits in tax costs versus increases in logistics costs. Without the need to carry out “tax tourism”, when companies take cargo away from their consumer markets only to capture tax benefits, companies will have to redefine their logistics networks. Variables such as distribution and transfer costs, shipping and storage capacity, investments and divestments in facilities, demand dispersion and service level will gain even more importance in the definitions of logistics networks.

We will await the definitions regarding the Tax Reform in the coming months, with the hope that taxation will, in fact, be simplified and burden less the companies operating in our country.