Brazilian President Dilma Rousseff has presented a new industrial policy that looks to help local companies face an increasingly strong domestic currency and what is considered unfair foreign competition.
Overall, the Plano Brasil Maior includes 25bn reais (US$15.9bn) in tax exemptions by the end of 2012, development, industry and foreign trade minister Fernando Pimentel said.
This new policy will have a positive impact in the country and encourage entrepreneurs to invest in the local market, according to the president of national electric and electronics industry association Abinee, Humberto Barbato.
"Though a bit late, these new measures are very important for our industry," the executive added, noting that the national industry was taking hits from currency appreciation and international competition, especially from Chinese manufacturers.
Barbato welcomed the government's decision to return to companies taxes paid into the PIS-Cofins social security fund. The return of these funds currently takes a year, but under the new plan the process will be automatic starting October, carried out through electronic tax collection and with funds returned in at most 60 days. Digital tax collection will be mandatory from March 2012.
Additionally, exemption from the industrial products tax (IPI) is considered an incentive for companies to increase investments in local production and exports, and create more jobs.
Plano Maior Brasil reduces industry costs by 20% and aims to solve other problems affecting IT companies, according to national association of IT companies Brasscom's president, Antonio Rego Gil.
The IT sector was one of the four segments of Brazil's economy covered by the reduction to zero of the 20% tax paid to state-run social security system INSS.
About a week ago, Gil gave a presentation to Rousseff on Brazil's IT market, ranked by IDC as the fifth largest in the world with US$85bn in revenues in 2010.
According to Gil, excluding the hardware industry, all companies from the IT sector will benefit from the labor cost reductions. He noted that payroll currently represents 70% of IT companies' costs.
When considering solely the payroll tax exemption, local IT companies can reduce labor costs by 20%. The tax is considered one of the most expensive, and is seen as putting Brazil at a disadvantage in contracts for IT service exports.
Additionally, the measure looks to put a brake on the informal job market. According to Brasscom figures, at least 50% of Brazil's 1.2mn IT professionals do not have a formal contract.
With the formalization of labor contracts, Gil believes that companies will have more access to credit to invest in innovation, train the workforce and be more competitive.
Also in Plano Maior Brasil, national development bank BNDES approved several measures to support the country's productive sectors.
The bank is launching a new phase of the BNDES Revitaliza program, to support sectors most affected by currency appreciation. With a 6.7bn-real budget and a fixed interest rate of 9%, the program will be valid until December 31, 2012.
Revitaliza will support investments in segments such as software, services and information technology.
BNDES also approved measures to encourage investments in innovation. The bank will award a 2bn-real credit to investment agency Finep with the aim of expanding its innovation portfolio.