Brazil’s New Industrial Policy Aims to Boost High-Tech Goods

Brazil’s government plans to cut taxes on domestically manufactured tablet computers as part of a new industrial policy aimed at boosting production of high-end consumer technology goods, Communications Minister Paulo Bernardo said.

Under policies being drafted now, manufacturers such as Positivo Informática SA and Itautec SA - Grupo Itautec, will be able to produce tablets in Latin America’s biggest economy without paying federal PIS and Cofins taxes, Bernardo said in an interview in Brasilia yesterday. The two levies boost a product’s cost by 9.25 percent, the electronics manufacturers association says. Government policy may push the sticker price of a tablet down as low as 500 reais ($301), Bernardo said.

“Positivo is entering this tablet business and it is important to get an incentive from the government,” Luciana Leocadio, an analyst at Ativa SA CTVC brokerage, said in a telephone interview from Rio de Janeiro. “Everybody was expecting this move by the government, this new signal is good for the industry and for the company.”

‘Start Competing’

Companies, such as Motorola Mobility Holdings Inc., are assessing the possibility of manufacturing tablets in Brazil to benefit from lower taxes, Bernardo said. Apple Inc. (AAPL) is also “prospecting the Brazilian market.” Tablets, which are portable computers that can be used without keyboards, produced in Brazil could be exported across Latin America, he said.

Positivo rose 3.1 percent today to close at 8.29 reais in Sao Paulo. The Bovespa index rose 0.3 percent to 67795.51.

“We’ve already cut taxes on modems and net components, we’re in this huge discussion because we’re interested in bringing factories and technologies here to Brazil,” Bernardo said. “We could start competing in this market, there’s no company from the West.”

Motorola officials met Bernardo earlier this month to discuss the possible production of tablets, though no decision has yet been taken, Giuseppe Marrara, director of government relations at Motorola Mobility in Brazil said in a statement.

An official at Apple’s Brazilian unit declined to comment. Spokesmen for Positivo and Itautec SA - Grupo Itautec weren’t immediately available for comment when called today by Bloomberg News.

Apple’s iPad, one of the best-known tablets, in Brazil is priced from 1,399 reais ($842). By comparison, the iPad2 starts at $499 in the U.S.

Incentives

Incentives for manufacturing tablets follow similar moves made in 2005 by former President Luiz Inacio Lula da Silva, who also cut taxes and created credit lines for purchases of computers and laptops made in Brazil costing up to 3,000 reais.

“The government is revising the industrial policy and that’s virtually agreed, I haven’t seen anyone speaking against tax cuts,” Bernardo said. “We’ll cut the PIS and Cofins, tablets will have the same tax benefits computers and laptops do.”

The government will unveil the new industrial policy by June, Bernardo said.

Pay TV, Cable

As part of the technology initiative, the Senate may approve as early as April new rules for pay TV services, such as cable, allowing telephone companies to compete in the market, the minister said.

Companies such as Tele Norte Leste Participações, Telefonica SA (TEF), Sercomtel SA Telecomunicacoes and Companhia de Telecomunicacoes do Brasil Central, may offer such services, increasing competition and cutting prices to consumers, Bernardo said.

Sercomtel, a fixed-line and broadband provider in Parana state, is preparing to take advantage of the new rules for cable TV, said company President Fernando Kireeff in a phone interview. “We understand that’s the trend, it will be necessary that we act in this segment.”

Spokesmen for Telefonica, CTBC and Tele Norte didn’t immediately respond to e-mail and telephone requests from Bloomberg News for comment.

Brazil has 9.9 million homes with pay TV services, with Net Serviços de Comunicação SA holding 45 percent of the market and Sky Brasil Serviços Ltda another 26 percent, according to Brazil’s telecommunications agency.

After changes in the law, the number of cities with cable may increase to 1,000 by 2014, from 238 today, Bernardo said.

“Companies will offer cable TV, internet and phone, for sure the price will fall and competition with cable TV will increase,” Bernardo said. “We’ll set the rules and leave the companies to battle between themselves and solve the problem of the price.”

To contact the reporters on this story: Carla Simoes in Brasilia at csimoes1@bloomberg.net Iuri Dantas in Brasilia at idantas@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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