Brazil’s electrical, electronics industry backs tax reform, but wants to keep incentives

The tax reform passed by Brazil’s lower house has been very well received by the electrical and electronics industry, which believes the new framework would streamline the current convoluted tax code and encourage more investment.

“We're satisfied with the reform. We have no changes to make so far," the president of electrical and electronics industry association Abinee, Humberto Barbato, told BNamericas on the sidelines of the entity’s annual tech event in São Paulo.

Companies in the sector are now awaiting amendments and revisions to be made to the text in the upper house of congress, where senators are expected to vote on the reform in October, in addition to definitions of future laws and specific regulations. 

The industry’s only concern at present is to ensure that sectoral incentive programs, some of which are longstanding, are maintained by senators.

“We need to maintain the incentives for industries to invest in research and development. The reform cannot ride roughshod over the past, the programs. If these programs are efficient, they must continue,” Barbato declared.

The executive was referring particularly to the Lei da Informática, or ICT law. Since the early 1990s, this policy has provided tax breaks to companies in the technology sector (in the hardware and automation areas) that invest in R&D.

There is no sign as yet that either this program or others – such as Padis, which supports the semiconductor industry, and Rota 2030 for the automotive sector – are at risk. 

“I had a meeting yesterday with Bernard Appy [Brazil’s special secretary for the tax reform] and he reassured us completely. There is no risk. Whatever the investment that a company makes in R&D, it will be compensated with the taxes to be unified, just as it is now,” said Barbato.

NEW TAX RATE

Abinee still does not have a calculation of what the sector's ideal rate single tax rate should be, said Barbato. However, the association does not think it should exceed 25%.

The reform has not defined a rate for the new value-added tax that companies and consumers will have to pay after the unification of five different taxes.

There is a view that this could be defined in the senate, but it is more likely that it will be established in complementary laws after the approval of the main text. 

However, the 25% rate has been suggested by some as a benchmark. 

A recent study by Brazil's institute of applied economic research, IPEA, said that the effective rate of the new tax could be as high as 28%, which would be the highest VAT level in the world, enabling sufficient income to pay for incentive programs, special fiscal regimes, reduced rates and tax breaks approved in the lower house.

These are measures that Abinee itself advocates for the companies it represents, as does the telecom sector, which wants to ensure that it has a lower tax burden.

Asked about this apparent paradox, Barbato said “There are exceptions .... You have to establish priorities. You have to see how much you have in your pocket for these priorities. But we believe that, at least for the industry, we will have a comfortable rate."