Incentive to the economy
New measures to promote investment and growth in 2012
CHANGES IN SAVINGS ACCOUNTS
The new rule regarding the return on savings accounts came into force on May 4 and affects only deposits made thereafter. All the R$ 433 billion deposited in about 100 million savings accounts that existed before the new rule will not be affected by the change.
Under the new rules, whenever the basic interest rate of the economy (Selic) exceeds 8.5% per year, savings account balances will be updated by the sum of the Reference Rate (RR) and a fixed percentage of 0.5% per month (or RR plus 6.17% per year). If the Selic rate reaches 8.5% or lower per year, the accounts will pay 70% of the Selic rate plus the RR.
The change ensures a high savings account return rate against the Selic. From January 2000 to April 2012, savings accounts paid 57.2% of the Selic on average. In 2010, this return hit a record of 70.5%. The previous rule was an obstacle to the decrease in interest rates in Brazil, because it established a minimum level for the Selic. Without this restriction, new conditions are set for reducing interest rates, thus benefiting society at large due to its impact on investments and economic growth.
BROADBAND EXPANSION HITS A RECORD HIGH IN THE COUNTRY
Two years into its inception, the National Broadband Program (Programa Nacional de Banda Larga) shows excellent results.
Increased access: the number of fixed and mobile internet access increased 157%, from 28.4 million in May 2010 to 73.0 million in April 2012.
Reduced prices: by April 2012, 1,396 municipalities had internet connection at R$ 35 per month. The connections speed is one megabit per second.
4TH GENERATION MOBILE PHONES IN BRAZIL
The frequency ranges necessary for the implementation of 4th generation mobile telephony (4G, which enables internet connections 10 times faster than those of the current mobile phones) in urban areas and of telephony and broadband telephony in rural areas were bid in June, bringing R$ 2.93 billion to public coffers. The ranges bid were:
2.5 Gigahertz (GHz) range for urban areas: 4th generation services will be implemented in municipalities with population over 100,000 by December 2016. In the cities hosting the Confederations Cup and the FIFA 2014 World Cup, the service will be available by April 2013 and December 2013 respectively. Thus, Brazil will be the first country in the world to provide this technology during global size events.
450 Megahertz (MHz) range for rural areas: provision of voice and data services (broadband internet) in rural areas distant 30 km from municipal seats by December 2015. The internet will also be brought into all rural public schools in the covered area.
NEW ACTIONS AND RESULTS OF THE GREATER BRAZIL PLAN (PLANO BRASIL MAIOR)
The Investment Support Program (Programa de Sustentação do Investimento - PSI), sponsored by BNDES, will receive an additional supply of R$ 45 billion from the National Treasury for loans to the productive sector. The PSI-4 currently in effect is valid until December 2013.
Interest rates have been reduced and the repayment terms of almost all BNDES’s credit lines have been extended to stimulate investment.
Reduction in Taxes and Social Contributions
Reduction in the Employer’s Contribution to Social Security (INSS): increased reduction in the employer’s contribution for 11 sectors more, totaling 15 sectors with the replacement of the 20% tax on the total payroll amount by a fee on sales revenue.
Vehicles: reduction of IPI (Tax on Industrialized Products) for vehicles and of IOF (Tax on Financial Transactions) on loans to individuals. In turn, the private sector has agreed with discounts on vehicle retail prices - 2.5% for 1,000cc vehicles; 1.5% for those between 1,000cc and 2,000cc; and 1% for SUVs.
White Line Appliances, Furniture and Civil Construction Laminates: IPI reductions on white line appliances (refrigerators, freezers, washing machines) and stoves were extended to August 30, 2012, and on furniture to September 30, 2012. The IPI on PVC laminates used in civil construction has also been reduced from 10% to 5%.
Telecommunications infrastructure: the government has also created the Special Taxation Regime of the National Broadband Program for the Establishment of Telecommunications Networks (REPNBL-Networks), which enables exempting investment (equipment and civil works) in telecommunications networks from IPI and PIS-COFINS taxes. The exemption will be in force until December 31, 2016. The regime will enable hasting investment in the modernization and expansion of telecommunications networks. The tax benefits are expected to lead to R$ 15.85 billion increase in broadband investment over the next five years.
Donation to nonprofits: creation of the National Oncology Care Program (Programa Nacional de Apoio à Atenção Oncológica - PRONON) and the National Health Care Program for Persons with Disabilities (Programa Nacional de Apoio à Atenção da Saúde da Pessoa com Deficiência - PRONAS/ PCD). The programs encourage donations to nonprofits that work in preventing and fighting cancer and in providing full assistance to and promoting the integration of persons with disabilities, through the deduction of donations from the taxable income of individuals and corporations. Deductions will be effective until the calendar year 2016 for corporations and 2015 for individuals.
Investment in Ports and Railroads: Reporto (Tax System for Incentive to Modernization and Expansion of Port Structure) program, effective until December 2015, has been expanded to provide tax benefits also to investment in storage, environmental protection and energy efficiency as well as in monitoring and security systems. The program reduces IPI, PIS-COFINS and Import taxes.
One computer per student: PROUCA (One Computer per Student) program has been reestablished, exempting the sale of computers, software and services for digital inclusion in schools from IPI, PIS-COFINS and CIDE taxes.
Maré Vermelha Operation: started in March 2012, this is the largest operation ever undertaken by the Brazilian Tax Revenue Service in ports, airports and land borders to combat unfair trade. It focuses on combating the illegal cross-border trade of consumer goods from the sectors most affected by unfair trade practices. From March to June 2012, physical inspection increased 61.7% over the same period in 2011. More than 46,000 imported items have been seized.
End of the Ports Battle: Brazilian Senate approved a resolution that ends ports battle, which encouraged imports to the detriment of domestic products. Effective from January 1st, 2013, the excise tax rate on interstate transactions (ICMS) on imported goods and merchandise has been unified at 4%.
Priority for domestic products in government procurement contracts
The range of domestic goods and services that will have a margin of preference in government procurement has been expanded. These products may, within the indicated percentage, cost more than their imported counterparts and still be given preference in government procurement.
New Automotive Regime 2013-2017
Automakers established in Brazil that meet the minimum requirements of investment in research and development (R&D) and engineering, internalize production phases and join INMETRO’s Brazilian Vehicle Labeling Program are entitled to an discount on Tax on Industrialized Products (IPI) of up to 30 percentage points. The discount will be conditional on the number of regional parts and raw materials, including from Mercosur, used in the production process. The higher the regional content, the greater the discount.
Companies that meet investment goals in R&D and engineering above the minimum required will be entitled to an additional IPI reduction of up to two percentage points. Companies with investment projects already approved in Brazil will be entitled to the benefits of the new automotive regime from the start of production.
EXPANDING INVESTMENT FUNDING
Long Term Interest Rate hits record low
The Long Term Interest Rate (LTIR) applicable to BNDES loans and other public funding has fallen from 6% per year to 5.5% per year. The new rate will be effective from July 1st to September 30, 2012.
New R$20 billion credit line for states and the Federal District
The largest credit line established for the 26 states and the Federal District, called Pró-Investe, has been in effect since July 9. Totaling R$ 20 billion and targeted at investment, it will be operated by the BNDES.
The funding cost to the states will be:
• with Federal Government guarantee: LTIR + 1.1% per year;
• without Federal Government guarantee: LTIR + 2.1% per year.
Funding may be contracted until January 31, 2013 with payment term of up to 20 years, including a grace period of up to two years.
Funds have been allocated based on the following criteria: 40% according to the distribution of the State Participation Fund (Fundo de Participação Estadual - FPE); 40% according to population; and 20% divided equally among all 27 units of the Federation.
The maximum funding limit for each State is available at http://www.bcb.gov.br/pre/normativos/ res/2012/pdf/res_4109_v1_O.pdf.
COMPLEMENTARY PENSION FUND APPROVED FOR FEDERAL CIVIL SERVANTS
The new pension system for federal civil servants has been established. New civil servants will be entitled to a pension and retirement benefit limited to the amount of the maximum benefit paid by Social Security, which today is R$ 3,916.20. To receive an additional amount, civil servants will contribute monthly to the new complementary pension foundations of the federal Executive, Legislative or Judicial branches. The Federal Government will match the civil servants’ contribution up to the limit of 8.5%.
Civil servants hired before the enactment of the new law may choose to remain in the old system or migrate to the new one.
The establishment of the Complementary Pension Foundation for Civil Servants of the Executive Branch (Fundação de Previdência Complementar do Servidor Público Federal do Poder Executivo - Funpresp-Exe) will enable establishing the largest pension fund in the country as well as expanding the basis of investment funding.
SUPPORT FOR ENTREPRENEURSHIP
Individual Micro-Entrepreneur (Microempreendedor Individual - MEI): in June 2012, the number of formal entrepreneurs reached 2.2 million, up 35% over December 2011 (1.6 million).
National Microcredit Program – Growing (Crescer): from the inception of the program in September 2011 to April 2012, 1.35 million operations were contracted, totaling R$ 1.7 billion. A total of 747,000 operations were carried out in 2012 alone.
PAC EQUIPMENT: GOVERNMENT PROCUREMENT
To encourage industrial production, the Federal Government launched the PAC Equipment (PAC Equipamentos) – Government Procurement Program for the purchase of machinery, ambulances, and school buses among other items. The program will entail purchases totaling R$ 8.4 billion in the 2nd half of 2012.
In addition to increased resources, the rules for the acquisition of hospital equipment and supplies give preference to domestic products, according to the margins provided for in Decree No. 7767 of June 2012.