Government prepares tax cut to expand semiconductor production

The government prepares an MP (Provisional Measure) aimed at exoneration of the semiconductor chain. The objective is to stimulate the Brazilian supply of components, which have been facing a global supply problem mainly since the pandemic and which are crucial for the operation of a series of products – from toys and cell phones to airplanes and defense systems.

The PM is part of a broader set of initiatives being studied by the government to encourage semiconductor production and reduce long-term external dependence. The government estimates that five companies currently hold more than 90% of global component production.

With the set of actions, the government expects to be able to increase the sector’s domestic market revenue from US$ 1 billion to US$ 5 billion by 2026, reaching US$ 12 billion in 2031 and US$ 24 billion in 2036 – which would correspond to 4% of global revenue.

The MP would only be the first step in the plan. The Informatics Law and Padis (Support Program for the Technological Development of the Semiconductor Industry) will be amended.

Daniella Marques, Special Secretary for Productivity and Competitiveness of the Ministry of Economy, said that the MP will include new items in the exemption list that exists today in the legislation. “The objective is to relieve the chain through a simplified system of entry and exit in the country of materials and components”, she said.

According to her, there is still no estimate of the fiscal impact to be generated, as the government is still studying the measure and its effects.

On another front, the government is studying using public resources to cover part of the risks of manufacturers when investing – through existing funds, from Finep (Financier of Studies and Projects, a public company dedicated to the promotion of science) or budget programs of the ministries (such as Science and Technology).

In the set studied for semiconductors, the government also plans exemptions along the chain with the payment of taxes only on the sale of the finished product, labor training programs, a simplified and express system for the entry and exit of materials, in addition to the development of a new export platform.

As shown by Sheet in March, Minister Paulo Guedes (Economy) agreed after meetings with companies linked to the sector with the importance of the country having an industry focused on semiconductors and with measures aimed at tax relief.

Guedes, however, is often critical of sectoral tax subsidies. For him, to a large extent they result from the lobbying power of certain industries in Brasília, while others, without power of articulation, have to bear the existing tax burden.

After being asked how the sectoral plan fits into Guedes’ vision, the secretary stated that semiconductors are strategic and that the intention is to modernize an existing law.

“Semiconductors today are a strategic issue that we are bringing as a priority and of State policy, due to the obvious bottlenecks existing in the world. We are not talking about creating new localized benefits,” he said. “We are talking about the modernization of Padis and the current IT Law, and not the creation of a new tax exemption program”, he stated.

She sought to reinforce, however, that the Ministry of Economy’s priority is to grant broad tax reductions. “As is known, we have prioritized horizontal tax reductions, so we have a constant agenda of, preserving the fiscal target, transforming excess revenue into tax reductions for companies and the population”, she said.

The discussions between the government and the private sector refer to examples from other countries that are in a global race to stimulate the sector. Among the initiatives taken by the world, there are subsidies and even the division of costs of construction of factories between the State and companies.

One of the initiatives analyzed is from the United States, where lawmakers recently advanced a project of US$ 52 billion in subsidies for the production of semiconductors. The country, like others, is trying to reduce dependence on Asia — which is responsible for meeting about 80% of global demand.

The European Union intends to double its semiconductor production by 2030. Meanwhile, countries such as China, Taiwan and Singapore continue to allocate incentives to companies in the sector.

The problem in the supply of semiconductors reached an extreme during the pandemic and continues to be felt in car manufacturing. With Covid-19, remote work has boosted demand for electronics as automakers have slowed their orders in the face of uncertainty — disrupting the supply chain.

Rogério Nunes, president of Abisemi (Brazilian Association of the Semiconductor Industry), told Sheet last month that the development of national production may not have results in less than 10 or 15 years. Even so, he defends government policies for the sector.

“It’s a matter of mastering the technology. The semiconductor industry is the basis for other products and, therefore, will increase our levels of social and economic development. It is absolutely strategic,” he says.

According to him, less than 20 companies operate in the semiconductor sector in Brazil — but the companies do not participate in the complete chain and about 70% of the inputs are imported.