Brazilian IT and software development firms have pleaded with President Lula’s government to exempt them from the higher taxes outlined in the new tax reform legislation.
The legislative bill, which has already been passed by Brazil’s Chamber of Deputies, would increase the taxes that IT companies pay by more than 180%, according to local media reports.
The current base (tax) rate for IT companies in Brazil is 5%, excluding local municipality tax. However, the proposed bill would increase this rate to 25%.
Industry lobby groups, such as the Brazilian Association of Software Companies (ABES), warned that the proposed tax changes would make Brazil less competitive in the global software market and hinder innovation and investment.
Instead of raising taxes, the associations have asked the government to continue the exemption on HR taxes or give tax incentives for hiring local graduates.
The IT and software services industry is highly labor-intensive, and companies in this sector are already paying high labor costs due to the shortage of skilled workers.
The proposed bill would also impose taxes on software licensing, raising the expenses for IT businesses even higher.
Comprising more than 135,000 companies, including over 30,000 software-specific firms, the IT industry has provided approximately 1.67 million jobs, according to industry lobby groups.
It is one of the major economic drivers for Brazil. In 2021, the industry represented 2.7% of the country’s GDP.