Telcos slam proposal to hike Brazils financial transactions tax
The Brazilian governments proposal to raise the IOF financial transactions tax will make credit more expensive, hamper capex capabilities and ultimately hurt ongoing network connectivity expansion, leading telecom operators claim.
The sector spoke out via Conexis Brasil Digital, an industry association bringing together Telefônica Brasil, Claro, TIM, Oi, Algar Telecom and Sercomtel.
“Conexis Brasil Digital is following with concern the discussions on the increase in IOF rates. Brazil already stands out as having one of the highest tax loads in the world, which represents a significant burden for the productive sector,” the group said.
“By raising the cost of credit, the increase in the IOF ends up compromising the Brazilian economys investment capacity and job creation. In telecommunications, it could jeopardize the ongoing process of expanding connectivity.”
Speaking on condition of anonymity, a financial executive from one of the operators told BNamericas the industry is united and felt it needed to take an “unequivocal” and “unified” stance to ramp up pressure against the initiative.
The executive also called the measure “anti-industrialization” and said it is “exactly the opposite” of the agenda advocated by the current administration – referring to programs such as the New PAC federal growth plan and Nova Indústria Brasil.
Under fire
The IOF measure proposed by the finance ministry, along with budget cuts to meet fiscal targets, came under fire from several sectors, which were not consulted and did not expect the increase.
Lawmakers are also pressuring the government to present an alternative proposal or risk having the initiative rejected.
Conexis said the IOF has a “regulatory function, not a revenue-raising” one, and that it should be used exclusively as an incentive or disincentive for a specific economic activity.
The IOF is not directly charged on telecommunications or internet services.
“Conexis advocates that any change in taxation should be discussed broadly and that fiscal adjustment measures should not penalize productive sectors. The entity believes that only through a more balanced and efficient approach will it be possible to guarantee sustainable and inclusive development for the country,” it said.
Telcos have claimed that the tax burden on telecom services in Brazil stands at 25.4%, in addition to 3.9 percentage points in fees they have to pay to sector funds, such as Fust and Funttel.
Conexis also claims that Brazil has the third highest tax burden among the 15 countries with the most mobile accesses.
In 2024, telcos said they collected 4.1bn reais (currently US$725mn) for five sector funds.
Investments
The countrys biggest carriers invested 24.3bn reais between January and September 2024, according to the latest data compiled by Conexis from its members, down from 24.5bn reais in the same period of 2023.
Adjusted for inflation, the capex in the first nine months of 2024 was 24.5bn reais, down from 25.7bn reais.
The final figures for 2024 are expected to be released by Conexis soon.
Electronics industry
On Thursday, electric and electronics industry association Abinee criticized the IOF move in a statement, saying that the measure represents “an additional obstacle to financing production, directly affecting strategic sectors for industrial modernization and the digital transformation of the Brazilian economy.”
Abinee says the electronics industry depends heavily on credit, both for the acquisition of inputs and capital goods and for financing high-value industrial equipment with long manufacturing cycles.
The increase in the cost of operations “compromises productive investments, discourages technological innovation and imposes additional difficulties, especially for smaller domestic companies,” the group said in a release.
“In a country that already has one of the highest tax burdens in the world, tax initiatives like this only worsen the business environment. Fiscal balance must come from economic growth, not from the continuous increase in taxation,” it added.
The entity said it asked industry and commerce minister Geraldo Alckmin to step in and intervene so the government changes course and seeks alternatives to the IOF hike.