Tax increase may increase the use of technology in Rio de Janeiro

The Legislative Assembly of Rio de Janeiro approved, on 03/31, the Bill 2023/2020 that directs e-commerce companies to pay ICMS on online purchase services and website creation. Even though the text has not yet been sanctioned by the current governor of the state, this decision could increase the final price of information technology products and services by up to 18% and contribute to the weakening of the digital economy.

According to Rodolfo Fücher, president of the Brazilian Association of Software Companies (ABES), companies already pay ISS (municipal tax) on this activity, as required by the Brazilian Constitution. “If the state of Rio de Janeiro insists on the creation of ICMS, the measure will be considered double taxation and will end in a tax war between the state and the municipalities, as happened in the State of São Paulo until the Court of Justice recognized the illegality of the tax. Decree No. 63,099/17”, he explains. According to the executive, the result of this decision, in addition to increasing prices for citizens who use these services, will generate yet another legal battle and further discourage Brazilian entrepreneurship.

The e-commerce service and the digital solutions service (Information Technology) had been growing dramatically and, with the arrival of COVID-19 in Brazil and the recommendation of social isolation, many entrepreneurs directed the physical doors of establishments to the web, boosting the delivery activities and the provision of online services.

In this pandemic, the use of digital platforms has been fundamental, allowing remote work (home office), audio and video conferences, enabling the functioning and voting by city councils, legislative assemblies, the Chamber of Deputies and the Senate. federal system, enabling online sessions and judgments to be held by the courts (including the STF).

In the health area, digital technologies have provided virtual medical care, the use of applications to help identify contagion and provide guidance on how to proceed, the holding of psychotherapy sessions and even the practice of physical activities. However, the addition of another tax can make the use of these technologies and e-commerce in the state of Rio de Janeiro unfeasible, bringing serious consequences for the entrepreneur, in addition to making it impossible for citizens to access a multitude of services.

“When this possibility arose in the state of Santa Catarina, the representatives understood that this could harm a promising sector for the economy and, today, the state is considered the Brazilian Silicon Valley. In order to maintain legal certainty for companies in the sector, Santa Catarina recently issued a new law No. 17,736, declaring the non-levy of ICMS on software operations. If Rio de Janeiro bets on this idea, consumers will have to pay more and, consequently, it will lead to the weakening of business in the digital sphere of the state”, comments Fücher.

“The market data shows how Santa Cataria is in the right direction and São Paulo in the wrong direction. IDC research on the software market shows that Santa Catarina's share in the IT market jumped from 2.4% to 4%, between 2017 and 2018, while São Paulo's share dropped from 40.4% to 36% in the same period”, he adds. Fucher.