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Markets & trends

Increase in tax rate for cosmetics and personal care products requires new strategies from the industry to resume growth

The trend towards higher tax levels began in 2015 and keeps pushing manufacturers and distributors to constantly innovate to boost sales.

The performance of the personal care and cosmetics industry in Brazil has been undermined by high tax rates and the industry has entered a legal battle to try and change the current scenario. The excessive tax burden has added to the economic uncertainty and reversed a growth trend of more than two decades. A shortfall in tax collection in many states has resulted in higher tax rates on items that are essential for health and wellbeing including shampoo, toothpaste, deodorant and sunscreen.

Since 2015, the cosmetic industry has been waging a legal battle for tax cuts. In some states, the tax increase was over 100% for certain products. Jonas Lima, marketing manager at oral care company Suavetex, says the situation is even more complicated when essential products are overtaxed because they cannot be replaced. “An increase in the tax burden leads to impoverishment of the people. As products become more expensive, they have a greater impact on the individual’s income. Middle and lower classes are the ones that feel it the most,” says Lima.

In the state of Pernambuco, tax rates on deodorants rose 47.1%. Paraná saw an increase of 108.3% in the tax burden on sunscreens. In Minas Gerais, toothpastes recorded a tax rise of 125% and a 4.6% fall in sales in 2016. "Suavetex has also suffered due to unreasonable taxation measures taken by the State and Federal governments. The ICMS (a state-level sales tax) on toothpaste, which is our flagship product, has jumped from 12% to 27%, aggravating the impact of the economic crisis,” he says.

João Carlos Basilio, president of the Brazilian Association of the Cosmetic, Toiletry and Perfumery Industry (ABIHPEC), says the industry’s performance has been improving slowly over time and as a result of efforts from the manufacturers to reduce the impact of the taxation policy on sales. In 2016, sales of cosmetic and personal care products fell by 6%, totaling R$ 45 billion. However, the decline was less steep than the –9% recorded in the previous year. Some factors have also contributed to the 2015 sales loss, including the economic recession, political crisis, and devaluation of the Brazilian real. On the other hand, the figures show that innovation efforts by the industry to overcome the challenges have lead to positive results.

Basilio recalls that in the 1980s, there was virtually one type of toothpaste available in the market, whereas today the variety of products is immense. Thousands of beauty salons, supermarket chains and drugstores have also benefited from the expansion of the cosmetic industry. Innovation has gone above and beyond the product level to encompass the service sector, which has also seen significant changes – franchises took advantage of development opportunities and the direct sales channel has evolved to keep generating income for thousand of Brazilians.

"Despite all these benefits, which are largely due to the tax cuts that took place during the 1980s and 1990s, the Brazilian government has decided to take the opposite path and increase tax collection in the short term,” says Basilio.

Lima points out how an excessive tax burden can affect some states more than others, as it is the case with Minas Gerais. "The high taxes are hindering the companies’ ability to execute on their growth strategies and compete effectively. Many companies are leaving Minas Gerais for other states due to the lack of a development plan,” he says.

"The cosmetics and toiletries industry is making continuous efforts to overcome the current economic challenges in Brazil. Despite the fall in sales, in 2016 we managed to deliver better results than in the previous year,” says Basilio. "Brazil continues to be one of the largest global markets for personal care and cosmetics and consumers perceive these products as being essential for maintaining health and wellbeing. We will keep working hard to innovate and deliver products that suit the needs of the Brazilian population."

Vanessa Soares

Portfolio

© 2018 - Brazil Beauty News - www.brazilbeautynews.com

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