Network Planning and Tax Costs in Brazil

The planning of logistics networks is always on the agenda of logistics executives in Brazil. Its importance stems primarily from the profound impacts that facility location decisions have on companies' costs and service levels.

Figure 1. Example of a logistics network
Source: ILOS

The complexity of the decision on the logistics network is justified because not always the location of installations that generates the greatest savings in costs is the same one that satisfies the level of service that the customer requires, placing the objectives of minimizing costs and maximizing sales under intense debate.

This discussion is even stronger at times of great variation in demand, such as crises or peaks in development, challenging executives to review the company's structure and logistical practices, calling into question the quantity, size and location of its facilities.

The definition of the logistics network involves the positioning of manufacturing plants, distribution centers and advanced points in order to minimize the total costs for a period of operation. Costs that must be considered involve transportation, storage, production, purchasing, and tax costs.

In the case of Brazil, tax planning is of great importance in determining the logistics network. The country's tax policy does not have a single regiment, with states and municipalities defining different quotas for taxes such as ICMS (Tax on Circulation of Goods and Services) and may offer various tax incentives to attract companies.

These factors usually have a significant impact on the companies' total costs, strongly influencing decisions about the placement of facilities and the routes to be taken. The impacts can be such that companies are often encouraged to practice “logistic tours”, taking cargo far from their consumer markets, increasing their logistics costs, just to capture tax benefits.

The tax/fiscal issue is so important that, currently, 80% of national companies define their logistics network considering these aspects. In economic sectors that require more complex logistics networks, this percentage is even higher, reaching 100% in the case of Hygiene, Cleaning and Cosmetics companies.

Thus, although most companies in Brazil already analyze the tax/tax issue when locating their facilities, there is still a considerable portion that wastes the opportunity to obtain benefits when defining their logistics network. And your company, is it concerned with the tax/fiscal issue when studying the possibility of implementing a new distribution center?