Understand the benefits of the new cabotage tax rule

  • 27/10/2020
  • 9 minutes

Cabotage in Brazil has been emerging in recent years as a modality capable of contributing a lot to the development of our economy. With this in mind, new rules for importing ships destined for this type of transport are being implemented in the country.

Do you want to understand what these changes are and their impact on the entire Brazilian economy? With the participation of mr. Luis Resano, executive director of the Brazilian Association of Cabotage Shipowners (ABAC), let’s analyze this scenario. Check out!

What does the new rule for taxes on the import of cabotage ships say?

The Executive Secretariat of the Chamber of Foreign Trade (CAMEX) announced at the end of 2019 an important change in the price formation of ships used in Brazilian coastal shipping.

According to the resolution, the import rate for vessels with this purpose goes from the previous 14% to zero, a considerable reduction in the tax burden for those who want to increase their fleet.

This is exactly what the Federal Government intends to do. The Minister of Infrastructure, even, pointed out the decision as a great incentive for anyone who wants to invest in the sector.

What does this change mean for the Brazilian market?

The center of this decision is the need that government and private initiative identify to expand the importance of the modal in Brazil.

As a focus, the change in the rule seeks to expand and modernize the cabotage fleet, giving companies more affordable prices. This combination of factors would bring more competitiveness to transport by ship, making freight – freight – faster and cheaper in the modality.

ABAC’s Director, Mr. Luis Resano, reinforces the advantages of this resolution for the transportation of Brazilian cargo: “this exemption must be viewed on the positive side, as it increases the options of Brazilian ship-owners – when they wish to expand their fleet. We hope that with the promised measures such as BR do Mar, there will be an effective increase in the demand for cabotage. Then, companies will assess the need to expand their fleet within the regulatory framework. ”

Luis exemplifies this possible breath in the modal thinking about the benefits that the initiative can bring to the container transport: “the container transport has a growth superior to 10% a year, although the economy of the country grows much less than that. This can be a development path. The transport capacity of the companies associated with ABAC – Brazilian Association of Ship-owners and Cabotage – is carefully treated, as we need to maintain this sustainable expansion. Orders for fleet growth must be on time and at the lowest possible cost. ”

The government’s proposal for the exemption is that it be temporary, in addition to determining that the resources of the Merchant Marine Fund cannot be used for this acquisition. But still, it is a very positive step. The expected impacts are there to be achieved: larger fleets, more companies in the sector and more freight options for Brazilian producers.

What are the challenges that still persist in the sector?

It is clear that measures like this give impetus to the cabotage sector and are promising for the future of the modal. However, professionals and institutions in the area still point out challenges that need to be tackled together with the import exemption.

For Luis, investing in capital goods is important, but the main focus of the development of this type of transport has to be on the reduction of operating expenses: “unfortunately this measure does not reach the highest cost of cabotage, which is the operational cost ( OPEX). The adopted measure has no influence on fuel, labor costs and taxes – factors that we also expect to be faced by the Government with BR do Mar. ”

This concern is clear and justified. Even if it contributes to business expansion, the exemption from taxes on the importation of vessels impacts on specific investments.

The success of the development of any sector for the future lies in the modernization and optimization of processes – whether in infrastructure, in contract management or in the organization of transport routines.

Being more efficient is still the big challenge for the sector. With the uncomplication and cheapness of resources and processes, it would be possible to serve more and better customers in the sector, creating a positive growth cycle.

What is expected for the future of the Brazilian economy with this change?

This cycle is the objective of expanding cabotage, with tax exemption being an important first step. The executive director of ABAC, although he does not interfere in the strategic decisions of companies, describes the direct impact of this decision on the economy of the sector: “new ships generate more job opportunities and, as we hire Brazilians, these are jobs that stay here for a long time – since the ship has a useful life of 25 years. These jobs will be guaranteed for the period. Modern ships are automated, but they do not dispense with the employment of seafarers, who are increasingly well trained and qualified. ”

Optimism about the Brazilian economy reflects what is expected from cabotage in the coming years. After all, domestic cargo (which is the case of the modal), varies directly with the country’s productive potential and the sector is betting heavily on economic heating for the future.

Mr. Luis Resano concluded by demonstrating the expansion capacity that we can envision: “ABAC member companies continue to invest in winning new customers and removing cargoes that are transported by land. A study carried out last year indicated that for each container transported in cabotage there are 5 others that could migrate from the road to the sea. It is the change in this scenario that we seek day by day.”

This growth is constant and, according to him, it passes the double digits of percentage per year. This recent past, of expansion well above the economy, is what points the way to the future. More modern ships, investments with greater return and a new logistics for the customer focused on efficiency are the points to be sought by public and private bodies going forward.

With intelligence, good decisions and greater alignment between the parties involved, cabotage has the potential to become a sustaining column of the Brazilian economy.

Did you like the content? So, what are the advantages of cabotage over road transport? What is the difference between them? We have a special article on the subject. Check out!