Telecom sector's pleas fall on deaf ears in Brazilian tax overhaul

Despite its exhortations on the impacts of the Brazilian tax reform approved in 2023, the telecommunications sector's pleas to row back some of the proposed regulations for the tax changes fell on deaf ears.

In the vote on the regulation of the tax overhaul in the lower house of congress on Wednesday, the sector's three main requests were ignored.

The approved regulation can be seen in the Documents box at the top-right of the page, in Portuguese.

Two amendments of interest to the sector were presented, but both were rejected by lawmakers. One involved the inclusion of interest rates and other financial expenses when defining the single unified tax rate, which is the object of the reform.

That measure does not just affect operators, but the telecom sector argues that financial expenses are not taxable and, therefore, should not be considered in the calculation of the tax rate as it is unconstitutional. 

The other rejected amendment concerned the cashback, or the refund of tax paid by individuals, to exclusively benefit lower income sectors of the public.

Operators wanted telecom services to have cashbacks of at least 50% of the tax paid, but the original wording of the regulation was approved, outlining only a 20% tax reimbursement for telecoms.

Meanwhile, cashbacks for energy and water services, among others, had their cashbacks increased to 100% during the vote. That means that, for vulnerable sectors of the population, they can be reimbursed for all of the tax paid for the provision of these services.

Telcos were also unable to persuade lawmakers to include their contributions to sectoral funds (Fust, Funttel and Fistel, among others) in the calculation of the tax they will pay.

Companies in the ICT sector are now likely to challenge the approved text in the courts, especially with regard to the inclusion of interest rates for defining the single unified tax rate, according to market sources.

In a joint statement issued last week, after a social committee presented the text of the tax reform regulation for vote, the associations in the sector, Conexis (big telcos), TelComp (ISPs) and Neo (ISPs) joined forces to show unity in their grievances.

They said that the regulation would not allow a reduction in the tax burden on telecommunications services and that this will mainly cause harm to the poorest Brazilians.

They also said in a joint statement that “Maintaining the inclusion of interest, fines and charges in the calculation base for the IBS and CBS will increase the tax burden in several sectors, including telecommunications. In addition to penalizing the sector, the measure is unconstitutional and must be corrected in the text to be voted on by the lower house.”

The tax reform regulation will now head to the senate for discussion and a second vote.