Brazilian Cable Ops Threatened with New Tax Burden


Sao Paulo, Brazil-Brazilian operators said the prospect of three new taxes, plus a hike on an existing levy, could almost double the amount they currently pay and push up subscriber fees.

Taxes currently make up about 34 percent of a subscriber's final cable bill, a percentage already well above international levels, according to a study by Brazilian MSO TVA.

Factoring in the new taxes and the increase, the percentage would rise to an average of 60 percent across TVA's systems nationwide, according to TVA finance director Marcelo Bonini.

"As in previous cases of tax hikes, we will have no option but to increase the final subscription fee," he added.

On Jan. 1, Brazil's federal government increased a tax on the circulation of goods and services, known by the Portugese acronym ICMS, from 5 percent to 7.5 percent.

The ICMS tax will rise to a further 10 percent for cable operators on Jan. 1, 2001, said Bonini. The government is also likely to eventually increase it to 15 percent, on par with the ICMS rate levied on telephone companies, he said.

The pay TV sector may be facing three new taxes on top of the ICMS hike. Sao Paulo's municipal government last year established a levy called the "contribution on the use of public locations."

Under that new tax, Sao Paulo-based cable operators-as well as telcos and water, sewage and electricity companies in the city-would have to pay taxes according to the size and location of their networks.

Sao Paulo Mayor Reinaldo Pitta signed the tax into law in June of 1999, with collection set to start a year later. However, MSOs Globo Cabo S.A. and TVA, long-distance carrier Embratel and wireline operator Telefónica Internaciónal S.A. won a court injunction to suspend its collection.

"The tax on the use of public locations is unconstitutional, because it was created by a decree, instead of a law approved by the House of Representatives and the Senate," said Júlio César

Fraga Vieira, the manager of the law department at Globo Cabo, Brazil's largest MSO. However, he noted that the city is likely to appeal.

Seemingly inspired by Sao Paulo's example, the mayor of Rio de Janeiro last month created a similar tax, affecting both telephone companies and cable operators. Mayors of other towns nationwide are expected to follow suit.

"It is becoming a fever," said Vieira. The Senate in June also passed a bill called FUST, which would require pay TV providers and telcos to contribute an amount equal to 1 percent of their gross revenues to a fund to expand telecommunications lines throughout the country.

Finally, ECAD, which represents musicians and composers, aims to charge a 2.5 percent tax on the gross revenue of local pay TV operators and broadcasters. Pay TV operators are trying to negotiate an agreement with ECAD through their national association, the Brazilian Association of Telecoms and Subscription TV (ABTA).

"I can understand paying rights for local musicians," said TVA director of technology and new business, Alexandre Annenberg. "That's the case of pay TV channels programmed locally.

"In the case of TVA, though, we buy the bulk of our programming from abroad and foreign studios pay rights in their home countries."