updated 09:45 am EDT, Tue May 24, 2011
Tax base sacrificed to lure Foxconn iPad assembly
Brazilian president Dilma Rousseff has signed a provisional measure exempting tablet makers from 9.25 percent in social security taxes, while also reducing the IPI industrial production tax from 15 to 3 percent, according to Forbes. The burden on government funding is being accepted to attract Foxconn, the Taiwan-based manufacturer which is preparing to invest $12 billion in São Paulo facilities to assemble Apple products for both local and international markets, with an emphasis on the Americas. Tax breaks were one of several demands from Foxconn before it would expand operations in Brazil.
Folha de São Paulo reports that 12 companies have already registered to start producing tablets. A local firm, Multilaser, says it is planning to build a domestic tablet costing less than R$800 ($496). Local production may be extremely important to tablet sales in Brazil, as the hardware is normally heavily taxed on import, pushing prices close to $1,000 in some cases. Even devices that are partly assembled locally often require parts from Asia.
Brazil's finance minister, Guido Mantega, claims that tablets will cost at least 36 percent less under new rules. The government must also create a new definition of what represents a Brazilian-made tablet, however, in order to actually carry out tax breaks.
Based on the tablet focus of the new measure, Foxconn's primary Brazilian output for Apple should be iPads. The company now faces special pressure because of an explosion at an iPad plant in Chengdu, China, which not only killed three people but will likely harm iPad shipments already under tight demand. Apple has also had to find alternate parts suppliers in some cases in the aftermath of March 11th's Japanese earthquake.