Tax break in Brazil having an early impact on M2M connections

Author: Marc Schryer
Published: 2015-04-27

A new tax policy, introduced in Brazil last September, with the aim of giving selected Machine-to-Machine (M2M) applications a tax break, has already had a noticeable impact according to data from telecoms regulator Anatel.

The 80% tax break reduces the initial activation fee from $15.07 to $3.05. The reduction also applies to the ongoing annual operation federal tax.

The high taxes under the old tax policy discouraged the uptake of M2M in key verticals, as we can now clearly see from lower growth rates for applications not covered by the tax break. A high initial activation tax deters adoption of M2M modules, which means in the long term tax revenue is being lost because annual operations and services taxes are not being collected. The new policy significantly lowers the barriers to consumers and operators for connecting a new M2M SIM.

However, it is only applicable to what are deemed pure Machine-to-Machine applications. These have seen a much higher growth rate in adoption than in IoT technologies not covered by the break—such as Point of Sale (POS) devices. POS machines were determined not to be strictly M2M transactions because a human must initiate the payment.

As of January 2015, Brazil had just over 10 million M2M connections with an average growth rate of 2.15% per month. But the total growth rate only tells part of the story because it lumps together those devices covered by the tax break with those that are not. Anatel data shows the growth rate of devices using M2M applications covered by the tax break is already six times that of those that are not covered:

• From September 2014, the first effective month of the tax break, to January 2015, the number of connections covered by the break increased by 108%, with 733,000 added, bringing the total to 1.4 million.
• This compares to a loss of 122,000 M2M connections not covered by the break over the same period, dropping the total from 8.8 million to 8.7 million.

Overall, growth fueled by the rapid rise in M2M connections benefiting from the tax break has continued into 2015. As the new tax policy becomes established, and operators work with Anatel to define exactly what is and is not covered, we expect to see very rapid growth in M2M applications covered by the break.

Today, TechPolis estimates there are 2 million M2M connections covered by the break and 8.7 million uncovered—a combined total of 10.7 million M2M connections. If the current growth rates are maintained, M2M devices covered by the break will outnumber those not covered by mid-2016, with the M2M market reaching a projected total of 17.2 million connections.

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