Sao Paulo — MercadoLibre (MELI) has been making changes to its landing page for foreign sellers looking to market their products in Brazil. The e-commerce giant has added new categories and nearly 4.2 million listings as it seeks to capitalize on a new tax break program from the federal government.
The Lula administration recently eliminated a key tax on products worth up to US$50 that are imported by individuals. This move directly benefits major foreign e-commerce platforms such as Shein, Shopee, and Alibaba, but has received criticism from domestic retail companies that manufacture products in Brazil, as they still face a variety of taxes and labor costs.
The new tax regime implies that Brazilian states are now able to impose their own tax (ICMS) on import operations.
According to MercadoLibre, imported products currently account for a small portion of total sales volume in Brazil, its largest market. However, executives believe this could change with the new regulations.
“We advocate for fair competition between domestic manufacturers and sellers, as well as international manufacturers and sellers. But with a tax rate that has gone from 60% to 0% and now to 17% due to ICMS, in our point of view ... there is no even playing field with 17%,” said Fernando Yunes, the Chief Executive of MercadoLibre in Brazil, during an interview with journalists last Wednesday (30).
“It’s unlikely that the tax rate will return to 60%, but it should move toward achieving fairness. If there is no even playing field, what will happen is that foreigners will end up with advantages over local businesses. As foreigners gain an advantage and competition moves in that direction, inevitably MercadoLibre will also start sourcing products from abroad,” Yunes added.
The executive, who is also a Senior Vice President (SVP) at the technology giant, pointed out that, “if there are products with lower costs when they are imported, MercadoLibre may gradually seek to bring that offering to Brazil.”
The Mexican Case Study
MercadoLibre has prior experience selling imported goods on a larger scale in other markets, Yunes emphasized. In Mexico, imported products account for about 15% of the company’s sales volume in that market, according to Yunes. In its last quarterly earnings conference, MercadoLibre stated that the imported products business in Mexico is “performing very well.”
“I believe it is a great example of how, when we focus on cross-border trade and develop the product, we can achieve solid results. Cross-border GMV [Gross Merchandise Volume] in Mexico has been growing about twice as fast as local GMV. And that is a profitable business,” said former CFO Pedro Arnt during a conference earlier in the month. The executive later left the company after 12 years to join Uruguayan fintech dLocal as co-CEO.
Like marketplaces that have started combining local and foreign sellers such as Shein, Shopee, and AliExpress, MercadoLibre also has foreign product sellers in its base. However, the company’s top manager in Brazil said that the volume is still “insignificant,” without revealing specific data.
In Mexico, Chile, and Colombia, MercadoLibre has reported significant growth in the sales of imported products.
Executives have indicated their willingness to invest in this segment in Brazil, as long as resources allow, in order to explore all opportunities and maximize their presence in the market.
According to Ariel Szarfsztejn, Executive Vice President of Commerce at MercadoLibre, the federal government’s new taxation program increases the tax burden for everyone.
“We still believe that the ideal scenarios in terms of deadlines will be far from our current value proposition of same-day and next-day delivery that we currently offer in Brazil,” said Szarfsztejn during the analyst conference on second-quarter results. “But at the same time, the new program also presents an opportunity for MercadoLibre.”
“We believe we can build and expand a strong cross-border commerce business by leveraging our own strengths, such as our traffic, trust in our brands, our payment infrastructure, and our local logistics,” Szarfsztejn added during the call.
In Chile and Colombia, MercadoLibre has reported that the sale of imported products is growing “at a three-digit rate in each of these countries.”