eCommerce giant MercadoLibre could face a challenge from Brazil’s new tax rules. On Monday (July 10), Bank of America lowered its rating on the company due to a rule change that exempts cross-border eCommerce purchases of $50 or less from a 60% tariff on imports but imposes a 17% value-added tax.

‍
“An official $50 exemption would encourage new entrants, activate existing channels, and attract greater investment,” the bank’s analysts wrote, according to a report from Seeking Alpha. This could hurt MercadoLibre, which has a merchant base in Brazil that competes cross border in markets such as fashion, appliances and consumer electronics.

‍
The Bank of America analysts noted that the change is so drastic that lawmakers could reverse it or try to address it, though such a move might not sit well with the public. “While we anticipate MELI [MercadoLibre] to pivot towards its own cross-border opportunities, accelerated by its Mexico successes, that change could take time, and we expect pure cross-border platforms and other derivatives to raise competitive concerns,” Bank of America said.

‍
In May, MercadoLibre reported that its net revenues rose 58% year over year during its previous quarter, with the gross merchandise volume (GMV) of its eCommerce operations up 43%. This growth was seen in all three of its major markets: Brazil, Mexico and Argentina. The company attributed this to its improvements in logistics and delivery times in Brazil and Mexico, and the robustness of its brand and value proposition amid a tough consumer environment in Argentina.

‍
Earlier this year, the company announced plans to add 13,000 new jobs in Brazil and Mexico, countries where the retailer has planned multibillion-dollar investments.

‍
Sources: https://www.pymnts.com/news/ecommerce/2023/mercadolibre-downgraded-as-new-tax-rule-promotes-ecommerce-competition/