Presentation by Luciano Coelho, FIESP, at the OECD Task Force on Countering Illicit Trade (TF-CIT) meeting 28-29 March 2017. For more information see www.oecd.org/gov/risk/task-force-on-countering-illicit-trade-meeting-2017.htm

1. Smuggled microcomputer
consumption reduction in
Brazil, due to an eletronics
research, development and
innovation incentive policy
Paris – March 2017
5th OECD Task Force meeting on Countering Illicit Trade.
Topic: Demand for Change: reducing consumer demand for illicit goods

2. Introduction
This case presents the positive effects of the fiscal incetives policy (“Lei do Bem”/
“Goodness Law”) for the scientific and technological innovation of electronics that
produced a reduction of the demand for personal computers smuggled in
Brazil between 2005 and 2016.
Besides the decline in illicit market share and an increase in the legal market, there
were indirect social benefits, such as:
• Formation of a culture that values the consumption of licit products, even with its
higher price
• Legal digital expansion for cultural and educational purpose in Brazil
• Expansion of highly skilled labor in electronic companies

3. Previous market scenario
Domain of illicit products

4. How the policy changed the demand
1. Competitive price: the arrival in the market of legal computers, although more expensive
than the ilegal ones, made possible the consumption without risk. The previous condition was
absence of legal consumption due to high prices.
2. Technology tax incentive: more than just a tax isention policy, the “Godness Law” gave
incentives to technology as an strategy to reduce costs and develop products.
3. Loyalty through technology: the consumption of legal PC’s led to the perception of
advantages in quality and performance, in a moment of digital expansion, so it was possible
to estabilsh a consumption culture of quality computers.

5. Source: IDC Brasil, acessado htttp://ri.positivoinformatica.com.br/positivo/web/conteudo_pt.asp?idioma=0&conta=28&tipo=3701, em 23.02.2017.
PC’s Medium Prices
1. Competitive Price: the incentive structure allowedthe reduction of upto 50% of
the average price of desktops, and up to13 times the average price of notebooks.
Since 2015 both operate at 2007’s average prices.

6. INCENTIVE
TO IMPORTS
AMORTIZATION
OF TAXES
REDUCTION IN
CONTRIBUTIONS
2. Tax incentives to technology: the main mechanisms created by
the Law 11.996/2005 that enabled the reduction of illicit demand
Reduction of up to 50% of import taxations on
machines and equipment purchased for R&D activity
Longer term for tax payments related to the acquisition
of intangible assets (software, patents, etc.) for R&D
Reduction of contributions proportional to the volume of
research and contracting expenses of R&D
researchers, up to the limit of 33.3% of these expenses

7. 95% 93%
98% 98% 99%
70%
76%
84% 86% 85%
25%
34%
44% 46%
49%
3% 5% 9% 10% 12%
2008* 2010 2012 2013 2014
Presence of PCs in Households in Brazil
A B C D/E
SocialClass/Population
ClassA/B=15%
ClassC=34%
ClassD/E=51%
Fonte: TIC 2014 / * Excluded rural population
3. Loyalty through technology: the experience of consumption of legal and quality
computers during the peak of the "digital expansion" inthe country, between 2005 and
2013, generated loyalty inspecial of the Brazilian C class, particularly the young ones.

8. Policy result: formation of a Virtuous Licit Trade Cycle
High quality
production
Recruitment of
skilled labor
R&D
incentive
Product with a
fair price
Consumption
driven by quality
Competitive
Market
Tax collection from
retail sales

9. 30%
27%
43%
45%
55%
64% 64%
72%
76% 77%
79%
85%
89%
70%
73%
57%
55%
45%
36% 36%
28%
24% 23%
21%
15%
11%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Licit Market Ilicit Market
Comparison between licit and illicit markets of the PCs
Sources: IDC Brasil (br.idclatin.com/default.aspx) & ABINEE
Conclusion: illicit demand reversion

10. References
• ABINEE. Propostas para o Desenvolvimento da Indústria Brasileira e do Setor Elétrico e Eletrônico,
Associação Brasileira da Indústria Elétrica e Eletrônica. Julho/2014
• ARAÚJO, B. C. Incentivos fiscais à pesquisa e desenvolvimento e custos de inovação no Brasil. In:
IPEA – INSTITUTO DE PESQUISA ECONÔMICA APLICADA. Radar: tecnologia, produção e comércio
exterior, n. 9. Brasília: Ipea, 2010.
• BRASIL. Lei no 11.196 de 21 de novembro de 2005.
• https://tecnoblog.net/194898/liminar-lei-do-bem-abinee/