IT competitiveness threatened by changes in taxation

* By Francisco Camargo, president of ABES

 
The Information Technology sector, according to study data from the Brazilian Association of Software Companies (ABES) in partnership with IDC (International Data Corporation), was responsible for 60 billion dollars in business in Brazil, placing Brazil in 7th place in the world ranking last year.
 
Still according to this same study, it is the sector that exports the most IT services (1.5 billion dollars in 2016, exactly). Its importance in tax collection is also significant. Average charges on a professional's salary amount to 132%. That is, for each R$ 1 thousand reais received by workers, another R$ 1.32 thousand is paid to the government in charges.
 
In 2011, the ICT sector informed the government that this situation was worsening the sector's competitiveness in general terms and the export of Software and IT Services, in particular. The main entities of the sector got together and made a public policy proposal to stimulate the development of the ICT sector.
 
This public policy led to an intelligent change in the social security contribution model, aiming to increase the collection not only of the INSS, but also of the Individual Income Tax and the FGTS, reducing informality, opening the possibility of collecting the INSS on the total amount of Gross Revenue (CPRB model) or on the Payroll value (CPFP model), chosen by the companies.
 
Unfortunately, for the sector, this was called “Payroll Tax Exemption”, which may be partially true for other sectors, but it did not imply a reduction in the INSS tax collection added to the Individuals Income Tax, but the opposite. .
 
Other sectors took advantage of the wave and, without carrying out further studies, 58 other sectors were able, optionally, to collect through the CPRB Model.
 
Recently, concerned with the word 'exemption', and also without carrying out detailed studies, the government, analyzing only the aggregate values, cut this model of INSS collection for almost all sectors, except three, which was the subject of Provisional Measure 774 .
 
While around the world it is discussed how technology impacts the business world and how IT companies should position themselves to help the various sectors of the economy in their journey towards digital transformation, the Brazilian market is disappointed as their government makes decisions that place the country against innovation and competitiveness.
 
The decision to remove the ICT sector from the list of companies that could collect the INSS or on Total Revenue or on Folha, worries the market, since the forecast is that this change will end with thousands of jobs and in the end with a reduction in the collection itself.
 
For the government, this initiative could help cover the shortfall in public accounts in the short term. But this solution is very debatable, as it could cause a cost adjustment in companies, boost the return of a certain informality, generating a reduction in the collection of the INSS, the Individual Income Tax and the FGTS.
 
It is necessary to clarify that the software and services companies, knowing the difficult moment that Brazil is going through, are not asking for any incentive, but the return of an Intelligent Public Policy, which allowed the increase of jobs, the improvement of the competitiveness of the sector, the joint increase in the collection of the INSS, the Personal Income Tax and the FGTS and the accelerated increase in the export of software and IT services.
 
This decision against one sector cuts across all economic activities, from agriculture to services and which today is the innovative engine of the world economy.
 
Changing this public policy, in the middle of the year, with no deadline for adjusting long-term contracts, does not help to improve Brazil's image, as it shows that Legal Security is not one of the country's basic values, in addition to making Brazilian companies unable to compete fully with other countries.
 
In the last published Global Competitiveness Index, Brazil lost six positions and currently occupies the ridiculous 81st position and this is the result of a sum of factors, from the lack of legal security, the tax complexity, the excess of regulations, to the excessive discretionary power of inspection.
 
The future of innovation in Brazil depends on the decisions that are made today. We need to know how to choose the future we want.
 
* Production Engineer from Escola Politécnica, with a specialization from Harvard University, Francisco Camargo is also the founder of Grupo CLM, a Latin American distributor focused on Information Security, Advanced Infrastructure and Analytics.