Increased tax burden on software and IT services has a cross-cutting impact on the cost of all sectors, including health, education and public transport. The decline in Brazil's ability to absorb technology will impact its competitiveness and increase unemployment
Information technology plays an essential role in the development of a nation and the competitiveness of its economy. According to the Organization for Economic Cooperation and Development (OECD), digital transformation drives economic growth, increases productivity and administrative efficiency, reduces inequality in developing countries, facilitates innovation and strengthens governance. In this sense, the Brazilian Association of Software Companies (ABES) is dedicated to boosting the Software and Information Technology Services sector in Brazil to promote digital inclusion, to expand opportunities for training the workforce and to improving the provision of public services, especially in education, health and social protection, as well as promoting public policies that guarantee equal access to technology and digital skills to prevent the expansion of social inequalities.
Therefore, ABES defends a differentiated treatment for the IT sector in Tax reform, since it understands that encouraging strategic investments in Software and IT Services is very different from imposing additional costs on technological development productive chains, impacting its ability to reduce historical social and economic inequalities in Brazil.
“Recently, the study by the Institute for Management Development (IMD) demonstrated the chaotic situation in which Brazil finds itself in relation to its competitiveness. This result is directly related to Brazil's low capacity to absorb technology. In 2020, the country represented the 9th largest IT market and, in 2022, we fell to 12th position. Increasing the cost of access will not help to reverse this situation, but rather jeopardize even more competitiveness and the process of neo-industrialization, which is among the priorities of the current government”, argues Rodolfo Fücher, President of the ABES Council.
The Tax Reform has several challenges related to the Software and IT Services sector. There is a natural complexity for micro and small entrepreneurs, as the argument of simplification hides operational difficulties that impact the software production chain and drive away investments and entrepreneurs in the sector. “In the end, the consumer will pay the bill, since he cannot pass on the tax increase for the goods or services he may acquire”, explains Fücher.
According to the Association, the new tax, whose rate is still unknown, could generate inflation in the prices of IT services, brutally increasing the cost of digital transformation and reindustrialization in Brazil. “In addition, the IBS (tax on goods and services), also known as IVA (tax on value added) will increase the tax burden on software operations (licensing of use) and on information technology services. To get an idea, taking the 25% VAT/IBS rate as a reference, the current tax burden would be multiplied by four”, he calculates.
For Jorge Sukarie, Board Member of ABES, there will be a loss of competitiveness for Software Developers and IT service providers in the country. “With the information we have so far on the Tax Reform, developing software in Brazil will be more expensive, as the main input of the sector is in labor and its charges, and these costs do not generate credit in the concept of the proposed tax reform, and may encourage the migration of companies to neighboring countries. We also envision a drop in investments, as the decrease in margins to accommodate the rise in prices at the end of the chain will lead to a strong reduction in the capacity to hire labor and investments in innovation, as well as the direct impact on Simples, already that the production chain will choose to acquire goods and services from companies 'not opting for Simples Nacional', and an increase in the cost of accessing innovative technologies, as the change to the IVA/IBS system will push the tax burden to the end. Considering a VAT rate of 25% as a reference, we estimate an increase of around 22% in the final price of software and technology services, which will generate a reduction in consumption, with less investment in technology and innovation, plus the loss of productivity and competitiveness of the country”, he lists.
1) Incentive to innovation: IT is a highly innovative sector that requires significant investment in research and development. An exceptional tax regime can provide tax incentives and tax breaks to encourage technological innovation and the development of new solutions.
2) Increase in the degree of national competitiveness: The Software and IT Services industry is highly competitive on a global scale. For Brazilian companies to be able to compete successfully in the international market, a favorable tax environment is necessary, with adequate taxation, similar to that of other countries and incentives that make it possible to reduce costs and improve competitiveness.
3) Job creation: The Software and IT Services Sector already generates a significant number of qualified jobs and has great potential to constantly increase this demand. A more adequate tax regime can stimulate the sector's growth, attracting investments and promoting the creation of new jobs, contributing to the country's economic and social development.
4) Attraction of investments: Differentiated taxation can attract national and foreign investors to the IT sector, promoting the country's economic and technological development. It is the role of the State to make the business environment inviting to print national economic progress.
5) Modernization of the national industry: The transversality of IT is strategic, which is why the State must encourage the adoption of digital technologies if Brazil wants to take advantage of the new opportunities that open up in terms of reindustrialization, improving its efficiency and competitiveness.
6) Contribution to GDP: The IT sector has the potential to drive the country's economic growth. The tax system should favor the expansion of the sector, increasing its contribution to the national Gross Domestic Product (GDP). According to the ABES Market Study, the IT sector grew approximately 3.0% in 2022, reaching a significant R＄ 247.4 billion in investments.
7) Talent development: The differentiated tax treatment aims to allocate resources to programs for training and training professionals in technology, boosting the development of necessary skills for the new digital economy.
ABES (Brazilian Association of Software Companies) aims to contribute to the construction of a more digital and less unequal Brazil, in which information technology plays a fundamental role in the democratization of knowledge and the creation of new opportunities for all. In this sense, it aims to ensure a business environment conducive to innovation, ethical, dynamic, sustainable and globally competitive, always in line with its mission to connect, guide, protect and develop the Brazilian information technology market.
Currently, ABES represents around 2,000 companies, 77% of which are micro and small companies, which account for approximately 85% of revenue in the software and services sector in Brazil, distributed across 24 states and the Federal District, responsible for generating more than 232,000 direct jobs and an annual turnover of R＄92 billion in 2022.
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