Out of all countries in the world, Brazil ranks among those in the top spots for consumers that pay the highest amount of taxes for telecommunication services. In some states, the combined amount of direct and indirect taxation can add up to over half of the price charged for mobile phone or even broadband subscriptions.
Investors in the telecommunication sector should be informed of the structure and the burden of the country’s taxes, and how these affect company operations and the consumer habits of Brazilians. Due to factors such as the high cost of broadband connections it is believed that over 7 million Brazilians steal wi-fi connections according to a study from 2013, and that represents merely one of the unfortunate consequences of the current taxation policies.
Brazilian analysts indicate that due to the nature of the taxation policy the country’s consumers might be paying close to 60% of their monthly telecommunications budget to state and federal governments in the form of taxes. As is the case for most discussions that involve the subject of taxes, there is no sign that the Brazilian government will take any significant measures in the near future to subvert this scenario, considering 12% of the state’s yearly budgets rely on taxes from telecommunications.
Value-added tax on telecommunications
By far the most burdening tribute for telecommunications in Brazil is ICMS, the country’s state value-added tax. ICMS is charged to consumers at the moment of payment of telecommunication service bills, and its rates range from state to state. São Paulo, the wealthiest and most populated state of the country, applies a 25% rate on telecommunication services while the state of Amazonas charges 30% and the state of Rondônia charges 35%.
However those rates alone do not paint the entire picture or represent the nefarious result of the high rate of ICMS. The state tax is not only applied to consumers but also to the service providers when offering hosting, equipment rental and other types of operations, which means that ICMS has a cumulative effect.
Federal regulatory contribution
Another form of taxation that substantially affects the prices of communication services in Brazil is FISTEL, the tax for inspection of telecommunication stations. As its name implies, this federal contribution is charged not only to telecommunication service providers but also to radio and television broadcasters. The transmitting stations that these companies operate are charged individually and on two occasions, first when they are installed and afterwards on an annual basis, with charges ranging roughly between USD 6.00 to USD 7,000.
Not only that, mobile telephone operators are required to pay FISTEL charges for every new subscriber and their annual maintenance, which might be an issue when most of these users are assigned to pre-paid plans and spend very little each month. The cost of FISTEL has such a profound effect on Brazilian telecommunication operators that the federal government is able to exempt some product categories in order to accelerate their deployment and adoption.
In January 2015 Brazilian president, Dilma Rousseff announced that Small Cells, or mobile network wireless access points with less than 5W of transmission power, would be exempt from the payment of FISTEL, a measure that led many of the major mobile operators in the country to purchase this type of equipment to improve the coverage of their networks in urban areas.
Telecommunication expansion contribution
Aside from the costly state and federal taxes, telcos in Brazil are charged contributions to funds designed to spread the adoption of telecommunications and technological development. Both of these tributes, FUST and FUNTTEL, have a smaller impact on the budget of companies, with a combined charge of 1.5% on the gross monthly revenue.
In theory, both of these funds would have their resources applied to the financing of telecommunication projects but that has hardly been the case over the last few years, particularly in the case of FUST. Official data indicates that over BRL 17 billion have already been collected by the federal government since its creation, and recent law projects plan to use some of that sum to improve the broadband connection of critical sectors of the country, such as public schools.