Brazil Medical Device Industry Demands Tax Exemption

U.S. medtech executives are not alone in their contempt of a medical device tax. Their counterparts in Brazil are equally as disturbed by a levy in that country.

Industry leaders are pressuring the Brazilian government to reduce the tax rate on medical devices, which in some cases, is as high as 39.6 percent. Proponents argue the lower rate would increase access to medical supplies and ease the country’s dependency on imported products. Brazil’s Unified Health System is responsible for 50 percent of the country’s healthcare materials purchases, according to Gilceu Serrato, chief secretary of the Innovative Health Manufacturers Alliance (Abiis), who attended a recent public hearing held by the House Finance and Taxation Committee.

Serratto told Committee members that small medtech companies cannot afford the country’s high levy on devices. “We collect BRL 3 billion {$1.3 billion} in taxes each year,” he said, citing the duties on products like scalpels (39.59 percent) and needles (33.78 percent) as examples. He also noted that roughly one-third of a product’s price goes toward taxes—an expense many of the 13,000 Abiss member companies are struggling to pay.

Such high tax rates discourage non-profits organizations from purchasing domestic products. Leandro Safatle, technical advisor to Brazil’s Department of Science, Technology and Strategic Supplies, told lawmakers the domestic device industry cannot compete with the less-taxed high-tech products from the United States and Europe and low-tech imports (gloves, scissors) from China. “Non-profit organizations do not pay import taxes, which is a constitutional right,” he said. “However, when that same company purchases a national medical device product, it must pay ICMS [interstate and inter-municipal transportation services and communications], PIS [Social Integration Program], COFINS [Social Contribution on Revenues] and a series of taxes which sum up to 30 percent in average and up to 40 percent of the product value. This encourages the purchase of imported products.”

ANVISA weighed in on the controversy as well. Executive Director Ivo Bucaresky said orthopedic surgery is cheaper abroad than it is domestically due to the 18 percent import duty rate on orthopedic equipment manufactured abroad. “The Brazilian medical device industry is experiencing a heavy international competition,” he told Committee members. “We have to think about how to ensure greater domestic production and competitiveness.”

But John Hamilton Rech, coordinator of Taxes on Production and Trade of Revenues, advised Brazilian legislators to review the country’s medical device tax codes with caution. He warned them that exempting federal taxes such as PIS and COFINS could impact other sectors like Social Security. “The list of exemptions can be increased but the question is always the extent by which the resources will affect other industries,” he said.