Why is the iPhone so expensive in Brazil?

Friday, November 14, 2014

After weeks of speculation, Apple announced the suggested retail prices for its latest iPhone models in Brazil. The iPhone 6 at entry level costs a staggering 3,199 reais (US$1,279) and 4.399 reais for the 128GB, contract-free iPhone 6 Plus.

Compare that to US$649 and US$949, respectively, in the US or 10,999 pesos (US$809) and 16,299 pesos in Mexico. In Chile, the iPhone 6 is priced at 499,990 pesos (US$838) and the iPhone 6 Plus goes for 699,990 pesos.

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All prices refer to unlocked, contract-free phones.

It is a common belief among Brazilians that it is cheaper to fly to Miami and buy iPhones and iPads there than to acquire them at home.

Apple began selling its newest iPhone models this Friday.

When launched in the US and nine other countries on September 19, the latest models broke opening weekend sales with over 10mn  new phones sold that same Friday.

Brazil is part of a broader fourth wave of countries, including Chile, Colombia, Uruguay and Costa Rica, where the iPhone6 and iPhone 6 Plus will be launched on November 14. The phones arrived in Mexico and 35 other countries across Europe, Asia, the Middle East, Africa and Latin America on October 31.

Apple plans to make the phones available in 115 markets by the end of the year, which makes this the fastest iPhone roll-out in the company's history.

In Brazil, though, prices might drag down sales.

The country's main wireless carriers are preparing high-end gala events to launch the new models on November 13 midnight, enticing clients with special deals and offers.  

The cheapest way to acquire a phone is by buying it directly from an operator and paying for 24 months on prepaid.

Claro Brasil's basic plan, for example, costs 2,148 reais for a 16GB iPhone 6. Customers get 200 outgoing minutes and 2GB of data allowance. The cost can be spread out over 12 months at 423 reais a month.

Market leader Vivo, meanwhile, offers the same device for 169 reais a month for a 150-minute individual plan plus 2GB of data. Oi, Claro and Nextel also offer special plan offers for iPhones, including interest-free installment plans.

One of the reasons why high-end smartphones are so expensive in Brazil is due to hefty import taxes. Brazilian taxes add as much as 33% to the cost of an imported smartphone, by some estimates, according to the country's planning and taxation institute.

Under the "Lei do Bem" law, the government grants exemptions of PIS/Cofins social welfare taxes PIS/Cofins for companies willing to assemble gadgets in the country, but up to a cost of 1,500 reais – which does not apply to the iPhone 6 or other top-tier devices.

Clearly such heavy taxation has forced companies such as Nokia, Samsung, Motorola, Sony Ericsson, LG and Huawei to open manufacturing plants in the country.

PIS/Cofins accounts for 9.25% of smartphone duties. In addition, a sizeable burden comes from the ICMS interstate sales tax, which can reach up to 25%.

Other factors include high logistics costs, high retail margins, high labor costs, expensive commercial rents and insurance costs.

Regardless of the hardship, consumers in the country are so enamored with iPhones that many are willing to pay astronomical prices.

Some 46mn phones were sold in Brazil in January-August, up 6% from the same period last year, according to research firm IDC. The result was driven by sales of smartphones, which totaled 33.4mn units, accounting for 77.6% of total sales.