Brazil to cut telecoms taxes ahead of World Cup
Brazil President Dilma Rousseff plans about USD 3.25 billion in tax breaks for companies that build new telecommunications networks, hoping to shield the sector from the global crisis and ensure that strained networks do not collapse during the 2014 World Cup.
October 01, 2011 / 10:05 IST
Brazil President Dilma Rousseff plans about USD 3.25 billion in tax breaks for companies that build new telecommunications networks, hoping to shield the sector from the global crisis and ensure that strained networks do not collapse during the 2014 World Cup.
The government believes the tax breaks will help boost investments in the sector by an additional USD 11 billion over the next five years, a period that should see the amount of Brazilian households connected to the Internet double, Communications Minister Paulo Bernardo told Reuters."The government is making an effort to improve the conditions for investment ... and reduce the effects of the crisis," Bernardo said in an interview on Friday.The announcement is the latest in a series of targeted tax breaks and other incentives as Rousseff tries to shield strategic industries from the impact of the global crisis. Bernardo will join her on a week-long trip to Europe starting on Saturday that aims, in part, to secure new investments.Two of the leading companies in Brazil's telecoms sector, Spain's Telefonica and Telecom Italia, are based in countries at the heart of the euro zone debt crisis.But Bernardo said that rather than cancel investments, companies should embrace Brazil as one of the world's only major growth markets."We have big expectations," he said. "Unlike other regions, Brazil has a market with growing demand, especially for Internet ... There are still entire areas of the country where there is no service. That's a big opportunity."Yet some companies have been slow to invest, in part because Brazil's tax load is among Latin America's highest. Analysts have warned that Brazil's phone and Internet networks could collapse unless they receive a major upgrade to handle both booming domestic demand and an influx of tourists when the country hosts the World Cup and 2016 Olympic Games.Bernardo, who is married to Rousseff's chief of staff and is considered a member of the president's inner circle, said he was confident disaster would be averted but acknowledged the need for good planning in coming years."We need to be careful," he said.Brazil's preparations for the sporting events have been widely criticized by world soccer body FIFA and others who say that red tape, cost overruns and labour shortages are threatening even critical projects such as stadiums.Yet Bernardo said the government was committed to providing "necessary infrastructure" for the World Cup, pointing to about 82 million reais (USD 44 million) allotted in next year's budget for telecoms upgrades in the tournament's 12 host cities.
Household internet access could double
More broadly, private-sector companies in telecoms have already committed to about 50 billion reais in investments in the next five years, Bernardo said. The government has "reasons to believe" that number will grow by an additional 20 billion reais thanks to the tax breaks, he said.Bernardo said Rousseff will send the tax proposal, which entails about 6 billion reais in tax breaks over the next five years, to Congress within 30 days.Rousseff's government has irritated some companies by pushing them to expand Internet service to poorer areas.Yet Bernardo said the companies would eventually benefit from the creation of new clients. He said that about 17 million households, or about a third of the total, currently have Internet access. The government has a goal of 40 million households by 2014, he said.Some investors have become wary of overly optimistic projections in Brazil as the economy slows both at home and abroad, but Bernardo said he was confident there is a huge unmet demand for broadband Internet access."We want greater quality, and better supply. We want these people to be attended to," he said.Bernardo also said Rousseff will not delay an auction for fourth-generation, or 4G, telecommunications networks, which is planned by the end of April. Some companies have asked for a delay, fearing the auction could impair their ability to make investments in existing third-generation networks. "We're doing it before the end of April," Bernardo said. "We're not going to delay it. I know (Rousseff) is not going to delay it."(USD 1 = 1.87 reais) Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
