How Brazil’s income tax overhaul could affect the telecommunications sector

Changes to Brazil’s basic income tax system passed by the lower house will likely increase operating costs for telecom operators and affect investments in the critical sector, including 5G.

Industry leaders and experts consulted by BNamericas have raised several criticisms.

“The approval risks further increasing the tax burden for connectivity in a country which is already a leader in the taxation of telecommunications and Internet services,” Marcos Ferrari, director of the telecommunications association Conexis, told BNamericas Brasil Digital.

Ferrari said the sector already contributes significantly to tax collection, as well as income, employment and internet access, and should have a lighter tax burden, not heavier.

Operators paid 60.6 billion reais ($ 11.6 billion) in taxes last year, or about 42% of the sector’s net income, for one of the highest tax burdens in the world, according to Conexis.

If the current version of the bill becomes law, it will strongly affect investments, the arrival of 5G “and the prospects that technology can bring to the economic and social development of the country,” Ferrari said.

The lower house concluded the vote on the amendments to the bill on September 2 and it will now go to the Senate for evaluation and final approval.

An amendment to the bill reduced the tax on corporate profits and dividends to 15%, from the 20% initially proposed. Dividends are currently tax exempt.

The approved bill also ended the deductibility of interest on equity, known as JCP, which has been used by large companies to remunerate invested capital. Especially high net worth companies used JCP and those that made large profits for distribution, such as big banks, infrastructure conglomerates and telecom operators.

“As for the telecommunications sector, where large companies are listed on the stock exchange, there will be a tax on dividends and the end of interest on equity, which these companies often allocate to shareholders, increasing their costs,” said Francisco Gomes Junior, specialist lawyer. in digital and telecommunications law, BNamericas said.

Gomes Junior cited a study by BTG Pactual which found that carriers will see a net revenue decrease of about 8.6% under the bill passed.

Among other changes, lawmakers approved a reduction in corporate tax to 8% instead of 15%, while the so-called social contribution on net income tax will be reduced to 8% instead of 9%.

For individuals, the lower house approved an increase in the threshold below which income tax does not apply. Currently, people whose monthly salaries do not exceed 1,903 reais are exempt from income tax, which will increase to 2,500 reais.

“They are increasing the burden on companies that produce and make a profit but do not interfere with government spending, that is where the problem lies. Now they have all sided with the companies and employees against them. changes, ”said Gomes Junior.


The ICT sector is also facing this year the end of the social security reduction program, which lightens the burden of social contributions for employers by replacing the 20% levy on wages with a flat-rate levy on gross income.

The instrument is mainly used in labor intensive industries, such as construction, call centers and clothing production.

First introduced in 2011 under the chairmanship of Dilma Rousseff to stimulate job creation and promote productive investment by lightening the workload, the instrument has been extended several times, the last time in 2020.

The 17 sectors that currently benefit from it want a new extension or even make it permanent, which the Ministry of the Economy is opposed to.

Congress debates the subject.

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