MercadoLibre Downgraded as New Tax Rule Promotes eCommerce Competition

eCommerce giant MercadoLibre could feel a pinch from Brazil’s new tax rules.

As Seeking Alpha reported Monday (July 10), Bank of America has lowered its rating on the company with the advent of 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,” that could hurt MercadoLibre, the bank’s analysts wrote. 

According to the Seeking Alpha report, MercadoLibre’s merchant base in Brazil competes cross border in markets that include fashion, appliances and consumer electronics. 

The Bank of America analysts say 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 it saw net revenues rise 58% year over year during its previous quarter, with the gross merchandise volume (GMV) of its eCommerce operations up 43%, with growth accelerating in all three of its major markets: Brazil, Mexico and Argentina.

As PYMNTS reported, 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.

PYMNTS spoke last year with MercadoLibre’s Karen Bruck about the rapid expansion of Latin America’s eCommerce market, particularly in the wake of the COVID pandemic.

“eCommerce penetration [before the pandemic] was way lower [in Latin America] than in the U.S. or other regions, such as Asia or China, in particular,” she said. “eCommerce penetration more than doubled in Latin America during the pandemic, but the biggest difference from other regions is that it never stopped growing.”

For a broader view of cross-border eCommerce, PYMNTS spoke earlier this year with Payoneer Senior Vice President, Americas Ya Wen, who said consumers’ fears about their finances are forcing online sellers to adopt new strategies and to find new partners.

“[Consumers] will be more conscious about their wallet,” Wen said. “They’re looking for bargains, they’re looking for deals. eCommerce marketplaces will face strong competition from offline brick-and-mortar retailers, which means they will steer their marketplaces to be more low-cost and deal-driven to remain competitive.”

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