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Many people venturing through South America have come upon Brazil with much surprise and wondered just why the prices are so different compared to their neighboring countries.
Here are 5 reasons why Brazil is so expensive and some tips on how to make the most of your money while you are visiting Rio de Janeiro.
The credit card transaction fees are twice the price in Brazil (around 3-5%). This is due to a complex and bureaucratic banking and tax system and higher indice of credit card fraud. These costs are passed on to the end-consumer.
Brazil was relatively shielded from the recent financial crisis, benefiting from strong internal demand and a lower debt leverage. Therefore, while other countries stopped growing, Brazil maintained high growth and an attractive investment proposition.
Brazil has among the highest inflation in the world according to the World Bank at 6.63% in 2011. However, the real rate of inflation in cities like Rio and São Paulo is even higher.
The main reason for the inflated costs are the extremely taxes on all imported goods. Duty rates in Brazil vary from 0% to 35%, with an average duty rate of 22.77%. However, Brazil operates a ‘Simplified Tax Regime’, where imports by air valued between US$50 and US$3,000 are subject to a flat 60% Import Tax on the CIF value of the import. This is all on top of the sales tax that occurs at time of purchase.
ICMS is a state sales tax, and therefore tax rates in Brazil vary by state. There are three groups of states, and the tax charged depends on the group to which a state belongs. The rates are applied as follows:
Group1= 17% = AC, AL, AM, AP, BA, CE, DF, ES, FN, GO, MA, MS, MT, PA, PB, PE, PI, RN, RO, RR, RS, SC, SE, TO
Group2= 18% = MG, PR, SP
Group3= 19% = RJ :(
ICMS is calculated on the sum of the CIF value, duty, and any excise and federal taxes applicable. With the Simplified Tax Regime, ICMS is levied at 18% of the sum of the CIF value and Import Tax on imports valued between US$50 and US$3,000.
Don't be put off by the statistics or what you hear of the expensive nature of Brazil – There still countless things you can do during your trip to cut costs and live modestly as seen in our article "5 FREE things to do in Rio de Janeiro".
Here are 5 suggestions on how to cut down on the costs:
Try getting away from the tourist clusters like Ipanema and Copacabana where a simple drink can be double the price.
Look for local restaurants and lunch deals that cater to the business crowd – often you can find a special menu that will save you some cash. Many restaurants have certain hours where they offer (PF) fixed price plates.
Shop around and learn how to do a little haggling (If you pay in cash you might be able to get a better price than with credit card). Try to find common goods in the city center like the shopping center of Uruguayan.
Avoid the pricy hotels and find yourself in a hostel. Shared dorms cut down significantly on sleeping costs. Make sure you stay in a hostel that has a kitchen with a fridge and storage area. Here at Discovery Hostel we have a fully functional kitchen and our guests save tons of money by cooking dinner instead of eating out every evening.
For electronics, cosmetics and many other imported items, your best bet is to purchase them abroad before coming to Brazil. Computers, gaming devices and cellphone can be easily double the cost (if not more!). Even middle class to lower middle class Brazilian residents have taken to foreign shopping excursions finding that the ticket for a vacation and shopping spree is far cheaper than buying at home. If something breaks, wait till you have a better opportunity to purchase your item when you leave the country.
The real solution in the hands of the government as they find solutions for making it easier for people to start and maintain businesses, ease tax rates especially for importations and get a handle of the currency appreciation. Till then it's up to you to play it smart - and where there is a will, there is a way!