Huawei wants lower taxes to sell phones in Brazil

Chinese telecoms equipment company Huawei wants lower taxes to effectively have a commercial strategy for the sale of cell phones in Brazil, executives from the company told BNamericas.

Despite being the world's third largest cell phone brand in units shipped, after Samsung and Apple, Huawei hardly ranks among the five major brands in Brazil.

Instead, sales in Latin America's largest consumer market, and the world's fifth telecom largest industry, are ruled by Samsung, followed by Motorola, LG, Alcatel and Apple.

Huawei lacks commercial staff in Brazil fully dedicated to mobile phones as well as a pervasive technical support network to serve those consumers. There also are no "Huawei stores" in Brazil, unlike in Latin American markets such as Chile, and the company's handsets are barely seen showcased at retailers' shops. Just a few models are sold online.

The fact is that selling phones in the Brazil was never really a priority for the group, which nevertheless does very well and fights neck-and-neck with European brands on the telecom equipment front (sales of towers, networks, etc).

The company has recently concentrated its lobbying efforts on being selected as a provider of public cloud to the government.

In any case, entering the Brazilian mobile arena remains on the radar and should be the next objective to be pursued.

BNamericas learned that Huawei's executives presented to Brazilian financial authorities a proposal for lowering taxes and fees weighing on the manufacturing and sale of cell phones. The idea is that such a policy would remain in force for a predetermined period, such as two years, providing a window of opportunity for companies.

Huawei wants to bring high-end models to the country, not entry level devices, but claims that prices would be "prohibitive" without tax breaks. The company's executives argue that lower tax percentages would be offset by gains from increased smartphone sales volume.

They also claim that the measure would have a "chain effect" in the whole telecom and mobile industry, as more advanced phones with upper connectivity and data features would boost ARPU (average revenue per user) for operators.

It would also require investments in network upgrades by these operators, which also may benefit Huawei.

Through the so-called Lei do Bem, Brazil grants tax breaks for companies conducting research and development in the country or using local components in their production. Because of fiscal adjustments, in 2015 the government ended a long standing tax relief regime that zeroed the social welfare taxes PIS and Cofins for smartphones, tablets and PCs. The policy was due to remain in force until 2018.

Currently, Brazil is struggling to curb expenses, raise revenues and meet its fiscal deficit target set for the year. This means that now might not be the best time to ask for tax breaks.