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Tax Free Technology - is it good?

By Nodecam in Culture
Sat Dec 30, 2000 at 08:58:06 PM EST
Tags: Technology (all tags)

I just read a story on Yahoo about how Brazil has just extended tax breaks on Tech companies for nine years.

Seems like a good idea - right? Well, how about the other sectors of the economy? If I'm running a food processing plant (for example) I'm now at a disadvantage relative to those tech giants (like Dell, Compaq et al.) when it comes to competing in the marketplace.

Really, do we need technology more than we need food? Why should these companies be given a tax break, while other industries have to pay their way?

On the surface, a tax break like this sounds like a great idea, but in reality it's only helping out the wealthy - specifically those who have invested in these tech companies. I've never been to Brazil, but I'm sure that Brazil has a sizeable number of poor people (just like every country in the world) - why not try to help these people out.

"But these companies will provide jobs" you say. Well, so does every industry in the country. From reading the article, it seems like the large tech companies involved in getting this decision made are holding a gun to Brazil's head - "Give us tax breaks, or we'll go elsewhere." This is precisely what's wrong with pro-sports today, and I hate to see the same thing happen with the rest of the economy, where the "star players" can demand the sun, moon and stars, only to get it, because there's always someone out there willing to give it to them

Ok, so I don't know how I worked pro sports into this equation, but it is a strikingly similar situation. If no countries were willing to make special concessions to these bullying big-business types, they'd be forced to live with the local taxation levels, the same as everyone else.

I'm not blaming Brazil for making this move, because it is a move aimed at helping the economy, but just like watching the New York Yankees purchase world series after world series, I'm kind of getting tired of it.


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Tax Free Technology - is it good? | 16 comments (11 topical, 5 editorial, 0 hidden)
Don't eat, buy more ram . . . (2.66 / 6) (#1)
by duxup on Fri Dec 29, 2000 at 09:23:42 AM EST

I'm tired so I might be a little dense, but I just have to ask:

How would a food processing company and Compaq compete with one another?

It's not direct competition (3.00 / 2) (#4)
by Nodecam on Fri Dec 29, 2000 at 09:37:01 AM EST

Good question.

It's not direct competition, but every company in every economy competes for scarce resources - be it labour, space, customer spending power or whatever.

If I'm competing with compaq to hire someone for a job, and this person is my first choice, compaq has an advantage in hiring them, because their tax level is lower.

It's not really a tangible competition in the "Tim Hortons vs. Robin's Doughnuts" sense (Ok, spot the Canadian) but it is competition.


[ Parent ]
Each company feeds off the other (bad pun) (4.00 / 1) (#7)
by communista on Fri Dec 29, 2000 at 10:59:40 AM EST

I can see your point here. Doesn't mean I agree, but I understand your concern. But there are several aspects of the technical realm that concern non-technical companies. Companies like Dell, Gateway, etc...host your company webpage...provide your offices with computers, not to mention the geeks that test software that your company uses....In favor of the technical side, they have their hands in nearly everything. Not to say that what you do is less important...but the time and money invested in sometimes potentially risky ventures deserves some credit, and in this case it's tax cuts.

I see both sides, however. I'm just so torn!!
/me fucks shit up!!!!
[ Parent ]
It's a back end thing (4.50 / 2) (#9)
by sugarman on Fri Dec 29, 2000 at 11:21:46 AM EST

Just to follow-up / clarify what I perceived as the gist of the original poster.

The "scarce resources" are the same infrastructure, expenses, and personalle that all companies need, reagrdless of the sector of the economy they are in. The tech companies are getting a head up in hiring better HR personnel, accountants, lawyers, etc. than the non-tech companies because of these tax breaks. This creates an inequity on the market.

[ Parent ]

While the fun lasts... (2.80 / 5) (#2)
by HiQ on Fri Dec 29, 2000 at 09:27:57 AM EST

There's a good chance that an action like this causes technology companies to open up a branche in Brazil, because the wages are low and now there's even no tax to pay. So for a short time there's less unemployment; but just wait till those seven years are over - they'll probably just leave again (ride 'em in, move 'em out, rawhide!)

How to make a sig
without having an idea
just made a HiQ
Economic Development (4.25 / 4) (#10)
by HypoLuxa on Fri Dec 29, 2000 at 11:49:02 AM EST

The purpose of this kind of stuff is to develop a new sector of the economy where one doesn't exist (or to stimulate a small sector into becoming a larger one). It's not to say that one industry is more important than another. Hopefully, then end result is that you will have a more diversified economy and be able to participate in more markets. This makes your national economy less voulnerable to dramatic changes in the world economy since it is spread out over more industries. Of course, this is the intention behing the theory, and in practice it doesn't usually work so neatly.

The reason that you don't have to give economic incentives to food production or retailing is that these are usually large built-in parts of any economy. There will always be a market for food; you don't have to create one. A lot of countries are using tax breaks or other economic incentives to get into the international IT game because they beleive that they will be left behind without it. Since there is no natural market for it, they have to use these economic incentives to create one.

I'm guided by the beauty of our weapons.
- Leonard Cohen

Clarifications and corrections (5.00 / 2) (#11)
by Pac on Fri Dec 29, 2000 at 12:14:31 PM EST

There seems to be some misunderstandings here about this law in particular and Brazilian science and technology strategy in general.

First, it is not an all-out tax-break. It reduces a specific tax, that aplies specific to manufacturing. The selling of goods is covered by a state tax (and sometimes by a export tax, if the product is to be exported). The reduction is progressively lower (ie, the tax is higher) during the nine year period. At the end of this period the tax goes back to normal levels.

Also, all companies benefitted by the tax break are required to invest 5% of their gross revenues in research and developement, 2.2% of those 5% in research institutions located in the same state of the company.

The author hints that Brazil would be better off if the money reverting to these high-tech companies was invested in lower tech instances, food processing for instance. The only problem of this line of thought is that the said money does not exist! Brazil is giving these companies a tax-break in exchange for the installation of plants in the country, plants that would easily be build elsewhere (in Argentina, Uruguay).

Food industries and agriculture have their own tax breaks and many other advantages and incentives (as in most developed countries).

Now, what happens 9 years from now? The author seems to think everybody will close their plants and go elsewhere. I do not think it is that easy. You do not go around building and enhancing high tech plants just to close it in a decade. The most expected scenario is that if all goes well, in 9 years Brazil will be a major producer, consumer and exporter of high-tech goods. As a side effect, a long lasting research infra-structure will be created.

So, I strongly disagree that this law will only benefit the high tech companies investors. It is a very good move for Brazil and in the end it will benefit the country as whole far more than investing in low-tech, no-future industries.

Evolution doesn't take prisoners

Nine years (3.00 / 1) (#13)
by davidduncanscott on Fri Dec 29, 2000 at 03:31:40 PM EST

You do not go around building and enhancing high tech plants just to close it in a decade.

Well, not on purpose I suppose, but how many of today's companies will still be around in 9 years? How many corp's even have a ten-year plan?

And actually, now that I think about it, there may be cases in which closing it in a decade is exactly what you do. What's the lifespan of a chip-fab?

Of course, in 9 years you can create an environment, a culture for such companies, in which case they may continue simply because it wouldn't occur to them to do otherwise. It's not like Silicon Valley companies are there for the silicon.

[ Parent ]

One major difference (5.00 / 3) (#14)
by adamsc on Fri Dec 29, 2000 at 03:51:12 PM EST

between the two industries is skill. Food is a mature industry - not much change, steady profits, etc. It's also comparatively easy to start a food company, since everyone is familiar with the product to some degree and it doesn't require too much in the way of highly skilled labor. The tech industries, on the other hand, need a lot of support. Without a critical mass of skilled labor, companies won't invest in your country - either there won't be workers or there may be some workers but not enough of the support infrastructure. More importantly, high-tech companies don't exist in a vacuum and increased experience will ripple through the economy. (e.g. I start a biotech company in your country - a bunch of moderately well educated workers aren't suddenly going to turn in to skilled molecular biologists but there will be a need for lab technicians, computer techs and mechanics. Younger kids will also start moving in that direction as the opportunities become available and the economy starts to shift into the information age)

The other flaw in your argument is assuming that countries are otherwise equal. Countries which haven't already met that critical mass of trained citizens are increasingly in danger of being left behind. A certain level of improvement is necessary just to maintain the status quo - consider how many jobs now require use of a computer or the Internet in some way vs. 5-10 years ago. In the first-world countries, the Internet wasn't a big threat - they already had widespread telecom, lots of modern computers and programmers/admins/etc. Now consider things from the perspective of a country where most of the populace have access to a non-networked 486-class machines or less.

The trend is only getting worse - catching up in ten years will require significantly more than catching up now.

What's wrong with this picture? (4.00 / 3) (#15)
by End on Sat Dec 30, 2000 at 12:28:36 AM EST

"Seems like a good idea - right? Well, how about the other sectors of the economy? If I'm running a food processing plant (for example) I'm now at a disadvantage relative to those tech giants (like Dell, Compaq et al.) when it comes to competing in the marketplace.

"...Really, do we need technology more than we need food?"

Food processing plants and tech companies do not compete with each other. People and corporations do not choose between food processing and technology in a mutually exclusive fashion.

Brazil's government is probably asking "do we need tech growth more than we need food processing growth," not "well, which is it gonna be, food or tech?" Actually, the matter of other industries probably did not come into the question at all. Like other countries, Brazil knows it needs a healthy technology industry to keep up in the 21st century. I'm not knowledgable about Brazil's economy, but their other industries are probably well established and do not need the same tax breaks to spur growth.


Probably (none / 0) (#16)
by ooch on Sun Dec 31, 2000 at 10:57:57 AM EST

I think it is rather curious that the one industry in which America is the biggest player, a poor country gives the company's a tax break. The saved taxes probably won't get into the hands of the hungry people in Rio, but into the hands of rich American CEO's.

Look here for some info on what tech CEO's make. Compare that to the dollar a day of the average poor brazilian(picked that figure from the air, in case someone wants to nitpick). A lot of brazilians can't even read or write, most have probably never used a computer or even seen one. Only a small elite will be helped by this, and the gap between rich and poor, which already is amazingly big in brazil, will only grow. Here you can find some examples of hunger in Brazil.

My guess is a fair amount of IMF(read: US) infolvement in this case. When you can choose between not getting neccesery loans, and give some taxbreak too some rich tech-company's, the choice is easily made. I have no proof for this whatsoever, but that's my gutfeeling.

Tax Free Technology - is it good? | 16 comments (11 topical, 5 editorial, 0 hidden)
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