If we insist on the same mistakes, we will never explore the economic potential brought by technology
* By Rodolfo Fücher
In 2019, in preparation for my trip to Israel, I had the opportunity to meet Uri Levine, one of the founders of Waze, in fact it was his idea, after getting stuck in Tel Aviv traffic. During the meeting, when answering a question about Brazil, he surprised everyone, commenting that Brazil has many opportunities, but he recommended that the startups he invests in do not invoice locally, due to tax complexity, a potential risk for the operation. I found the same perception during a meeting with the Maverick fund in Israel, which gave up on bringing an Israeli startup to Brazil, after receiving three different views from three Brazilian tax offices... certainly if a fourth were included, there would be a fourth recommendation.
This is a portrait of the insane regulatory environment we face, which scares away investors and entrepreneurs. We all live in the hope that the promised tax reform will completely change this arid Brazilian environment, where even the past is uncertain, as Pedro Malan, former Minister of Finance, said in the 90s.
Unfortunately, the proposal for simplification into a single tax turned out to be a perfect mirage. Constitutional Amendment No. 132, sanctioned by the president in December 2023, known as Tax Reform, replaces the five taxes that exist today (ICMS, ISS, IPI, PIS and COFINS) with at least three: CBS (Contribution on Goods and Services), IBS (Goods and Services Tax) and the new Selective Tax, also known as “sin tax”.
The text also establishes a different regime in relation to the general rules that provide, among other points, for a zero rate or a reduction of 60% in the rate to be defined for IBS and CBS, for sectors considered strategic for the country. However, the information technology sector, an input to the digital transformation we are experiencing, considered globally strategic for competitiveness and the development of any society, was left out of this special regime.
When we compare Brazil with other countries, we realize that we are possibly going in the wrong direction. Let's use China as an example, considered the second country with the best innovation ecosystem. There, a recent study developed by PWC, entitled “Global Artificial Intelligence Study: Exploiting the AI Revolution”, predicts that the use of AI will generate an additional US$ 15.7 trillion for the global economy by 2030 – China will simply be responsible for US$ 7 trillion of this total. There, the IT segment has a significant VAT discount of around 54%, remaining at 6%, as highlighted by Professor Aristóteles Moreira Filho, in his article “The Tax Reform of Information Technology – For an Appropriate Treatment for a Sector Strategic".
No wonder the Chinese are leading technological innovation. And Brazil? Well, we must continue to be at the forefront of innovation. Estimates indicate that Brazilian VAT should be among the highest in the world, reaching 27%.
Here in Brazil, many forget how strategic and vital it is to ensure that technology, especially information technology, is accessible to Brazilian society. The only way to guarantee the competitiveness of our economy, the famous neo-industrialization, so desired by the Brazilian government. It will hardly be achieved if we continue to burden it with tax reform.
Faced with all this complexity, my biggest concern continues to be regarding the impact that the sanctioned tax reform text will bring, especially for micro and small technology, software and services companies, which represent the majority of our market – around 93%. These companies are the most “sensitive” to any change, mainly because the majority are covered by Simples, which will experience an increase in the complexity of their accounting due to the treatment of tax compensation, also causing a direct impact on their cash flow, and putting into doubt the ability to survive. Another point that draws attention in the text of constitutional amendment 132 is the responsibility the company that is purchasing a product will have – it will need to ensure that its supplier has adequately paid taxes, so that it has the benefit of the proposed tax compensation.
Nobody discusses the importance of tax reform, but isn't it worth looking at the example of China, and including the IT sector among the strategic segments for the country, with the 60% discount on the tax rate? In the end, those who will suffer from the tax increase will be the customer, especially the end user. Does no one care about exploring the potential that technology brings to Brazil's competitiveness, and taking the country out of the ridiculous position it finds itself in?
Finally, does anyone care about giving hope to micro and small entrepreneurs, who are the engines of our (in fact, any) society? Everything indicates that we are not heading towards an oasis, but towards a perfect mirage
*Rodolfo Fücher is president of the Board of the Brazilian Association of Software Companies (ABES).
Notice: The opinion presented in this article is the responsibility of its author and not of ABES - Brazilian Association of Software Companies
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