Tax hikes, inflation and recession; is Brazil bad for business?

Tax hikes, inflation and recession; is Brazil bad for business?

Multinational corporations are struggling to turn a profit in Brazil, in the face of rising inflation, a weak real and ever-increasing taxes according to a report published by The Wall Street Journal. The newspaper predicts that the third-quarter of 2015 will see the weakest results from Brazil in over a decade.

What’s more, business in Brazil is unlikely to pick up any time soon. Specialty chemicals supplier FMC Corp is said to be ‘agressively’ paring back its Brazilian operations, with Chief Financial Officer Paul Graves telling investors, “We recognise that the cost of doing business in Brazil is likely to remain elevated quite probably beyond the 2015/16 season.”

Brazil’s 2016 budget, which is pending congressional approval, will see a 0.2 percent tax levied on financial transactions such as currency exhanges and transfers, while a number of corporate tax incentives have been removed.

More crucially for cosmetics companies, Brazil raised taxes on cosmetics products in June. For Avon, who counts the Brazilian market as its largest accounting for US$1.9 billion of the company’s sales last year, this was a disaster, contributing to a 6 percent drop in sales in the second quarter, compared to the same period a year before.

“Brazil is obviously challenging right now,” an Avon spokeswoman told the newspaper, “but we are committed for the long term.”