Tech firms could lose incentives as Brazilian economy tanks

Government's struggles to manage the country's finances could mean the end of tax breaks for local manufacturing

Fiscal incentives given to companies manufacturing technology products in Brazil could be reduced or even disappear as the government seeks to balance its accounts.

The law known as Lei do Bem ("Good Law" in Portuguese) provides tax breaks to companies as a means to encourage local production of technology items such as tablets and smartphones - and therefore reduce prices to final consumers.

A potential review of the incentives was mentioned in the government's budget proposal delivered on Monday, which is mainly focused on reducing the country's soaring debt and forecasts a primary deficit of R$30.5bn ($8.4bn).

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Last year, the Lei do Bem was renewed until 2018. It is not yet known whether the percentages that make up the tax incentive will be tweaked or if the relief will be totally scrapped. However, it is estimated that the latter could generate R$11bn ($2.9bn) to the government.

Any changes would have to be voted by the Congress before taking effect. But that is not the only change proposed by the government that could negatively impact the local technology industry.

In July, it emerged that the Brazilian government is looking to more than double social security contributions that tech companies have to pay despite concerns over job and salary losses.

Earlier this year, the government itself had predicted that the share of the ICT sector in Brazil's GDP would jump from 8.8 percent in 2013 to 10.7 percent in 2022, with exports reaching R$12bn ($3.2bn) and 3 million people employed within the sector versus 1,5 million in 2013. However, with the upcoming changes aimed at boosting the government's own budgetary goals, it is hard to tell whether those goals will be achieved at all.