How the Economy Responds to Import Tax in Brazil
Game Theory | Financial Freedom
With not a very diverse economy Brazil has a problem with collecting money from its citizens. They do not produce enough value per capita to support the country. The way the government combats this is through import taxes and tariffs. A 60% flat tax rate is imposed on any good imported into Brazil. That is very steep, to say the least.
The quality of the domestic products in Brazil isn’t the best. This requires citizens of Brazil to buy these overpriced imported goods if they are looking for quality. This is especially true for technology which is almost exclusively produced in foreign nations. An iPhone 14 in the United States is $799 while the same iPhone in Brazil is $1540.
Travel
Brazilians have figured out that they can travel to the United States and buy their products, where they can buy them for a fraction of the price. It is actually so cheap that with the cost of the flight, hotel, and product they will still save money compared to if they bought that same product in Brazil.
In fact, some even go on “vacation” strictly to buy products in the US. They go with a budget of thousands of dollars and stuff their suitcases to bring home. Think of it like a shopping trip but instead of toward your local mall it’s to another country.
Airlines
This “shopping trip” is so prominent in Brazil that returning flights to the country typically have to carry extra fuel to accommodate for the extra weight. Airlines in Brazil took notice of this trend. They started to advertise to their customers’ unique vacation trips. These trips were advertised to include a flight, a hotel, and a new laptop. So if you were looking for a new laptop. Instead of buying one in Brazil. Buy a flight to the US, take a small vacation, buy the same laptop, and pay the same price in long run. It is a win-win for everyone involved. Well except for the government of Brazil.
Airlines were incentivized to advertise to their customers in a way no other airline does. Instead of advertising cheap flights, or first class, or a meal on the flight. They were selling other countries’ products so consumers can get a discount. And the only way to get that discount? Fly with the airlines. Very smart marketing for the airlines and a creative response to the high tariffs.
Unintended Consquences
Those are the unintended consequences of the Brazil import tax. To prevent this, Brazil must lower its import tax. Or Brazil could produce product substitutes that sell at a lower price point. But like I said earlier they struggle with keeping the quality up to par with imported goods.