Brazil Believes Tax Cut Will Give Big Boost to Information Technology

Brazil is expecting to almost double its investments in the information technology sector. That would be possible thanks to the approval of the new Information Technology Law.

The Brazilian minister of Science and Technology, Sérgio Rezende, forecasts an increase in investment by sector companies, which may rise as high as 1 billion reais (around US$ 460 million) by 2007.

This year, according to the minister, the investment should total  600 million reais (US$ 275 million).

The law was approved in 2004 and regulated last Monday, September 25, in a decree signed by Brazilian President Luiz Inácio Lula da Silva, which extended the sectors tax breaks from 2009 to 2019. Around 300 companies should be benefited, a figure that, according to the ministry, represents the main companies in the sector.

According to a spokesperson for the Presidency of the Republic, the law forecasts, for example, exemption of the Industrialized Product Tax (IPI) up to 2014 for companies in the North, Northeast and Midwest of the country, and 95% reduction of the same tax for companies in the South and Southeast of Brazil.

To obtain the incentives, companies in development or protection of information technology goods and services or in automation will have to invest 5% of revenues with products benefited by the law.

"This makes the company’s investment more real," evaluated the minister. Those who do not invest will turn the 5% to the National Fund for Scientific and Technological Development, plus an extra 12%.

Rezende estimates that tax breaks due to benefits will be around 1 billion reais (US$ 460 million). However, the government forecast is that the reduction in revenues will be compensated by an increase in sector productivity.

A study by the ministry points out that between 1993 and 2003, the government lost 5.1 billion reais (US$ 2.3 billion – the fruit of previous information technology regulations that also forecasted tax breaks). However, sector revenues in the period totaled 10.9 billion reais (US$ 5 billion).

Current revenues of the national information technology industry total 30 billion reais (US$ 13.8 billion), of which 18.5 billion reais (US$ 8.5 billion) come from products that fit into the information technology law.

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