Tax break to boost IoT growth in Brazil

Author: Ricardo Tavares
Published: 2014-05-28

Mobile operators around the world are expected to make, on average, less than $4 a year in revenue per M2M connection thanks to the small amounts of data processed.

This will mean emerging markets with activation taxes (sometimes called SIM-card tax) will find it difficult to truly benefit from the Internet of Things (IoT).  Many applications will simply not be deployed because the revenue they generate would be insufficient to pay for the activation tax, not to mention service taxes, let alone turn a profit.

But in a very positive development for the IoT, the Brazilian government has taken a trend-setting decision to reduce activation taxes for M2M connections in the country. Despite delays caused by resistance from financial authorities, Brazil’s Minister of Communications, Paulo Bernardo, has finally been able to enact an already-approved tax break on M2M — almost two years after the original law authorizing it passed in Congress.

In September 2012, President Dilma Rousseff signed the Law which, among other things, provides an 83% tax discount for M2M connections. Brazil’s SIM card tax, Fistel, has a base charge of $12 for the activation of each mobile connection, but the new law reduced this cost to $2 for M2M services.  There are two elements in Fistel—an installation fee and an ongoing annual fee paid every March—both of which were dramatically reduced.

The break is only for machine-to-machine connections without human intervention, which could be problematic for the Internet of Everything (IoE), where humans and machines interact. An example of this is credit-card-processing machines where a person swipes the card through the machine, so the $12 rate still applies. As grey areas become apparent, the law may need tweaking in the future.

However Brazil already has the third largest base of M2M connections in the world, behind only China and the US, and this positive step forward can only result in the rapid growth of new connections.

According to figures from leading mobile chip maker Qualcomm, China has 34.7 million M2M connections followed by the US with 28.6 million and Brazil with 8.3 million. These numbers are still relatively tiny compared to overall SIM-card connections, but could reach between 20 billion and 50 billion worldwide by 2020, depending on whose forecasts you believe.

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