Tech Roundup, Mar. 13, 2019 | Brazil’s avant-garde AI regulation

. Mar 13, 2020
brazil ai regulation

You’re reading The Brazilian Report‘s weekly tech roundup, a digest of the most important news on technology and innovation in Brazil. This week’s topics: Brazil to regulate AI, tech companies react to tax reform and the downfall of scooter’s market.  

Brazil’s Congress to step in in AI regulation debate  

The Brazilian lower house is debating a new legal framework to regulate artificial intelligence. The proposal comes after the Science and Technology Ministry began work on a national AI strategy spanning legislation, research and development, public security, and impacts on the workforce.

The new framework will establish principles, rights, duties, and governance tools to be observed by governments, companies, and people while using AI in Brazil. 

What are the main points? It says the use of AI’ must respect human rights and democratic values, equality, non-discrimination, plurality, free initiative and data privacy — a crucial point, as Brazil gets ready to implement its data privacy law (LGPD) in August. Based on these pillars, it establishes that: 

  • AI use and operation in Brazil must be transparent;
  • AI agents: the text defines two legal figures, AI development agents and AI operation agents. They will be legally responsible for the decisions an AI system makes and also for keeping it compliant with the LGPD;
  • IA impacts report: a document created by the agents to describe the technology, including its management and risk mitigation. The government may request the report to be published, as well as suggesting better standards and tech improvements. 

Why it matters. AI regulation has become an international matter as countries work to foster this new technology while protecting citizens’ fundamental rights. Alisson Possa, a lawyer specialized in digital affairs, believes that each country will have its own framework for AI in the future and “it is good for Brazil to discuss this now, as we won’t have to adapt to a standard, but we can actually help to the set it. This may help to boost this area in Brazil.” 

How long before it becomes law?  The bill must go through three House committees, but barring any appeals it will not require a floor vote before approval. 

Scooter market in Brazil: from boom to bust

Startup Grow, created by the merger of Mexico’s scooter-sharing startup Grin and its Brazilian counterpart, Yellow, has reportedly been sold for only USD 1 to investment fund Mountain Nazca, after shutting down its operations in 14 cities. The fund—which owns group-buying websites Groupon Latam and Peixe Urbano—will take over Grin’s debt, and the startup will reportedly lay off personnel and empty its São Paulo offices. 

Flop. Grin is not the first scooter-hailing app in trouble. In January, startup Lime closed shop only six months after coming to São Paulo and Rio de Janeiro. A lack of understanding of the local market coupled with an unprofitable model seemed to be the root of the problem. As Yahoo Finance reports, residents of smaller Brazilian cities do not have the purchasing power to afford scooters, while vandalism is an issue in larger urban areas.

Moreover, lithium batteries—one of the scooters’ main components—are more expensive in Brazil. A scooter needs to be in use for 50 days to become profitable, but average life span was only around 28.

Why it matters. Grow was among the fiercest competitors in Brazil’s micro-mobility market, which boomed in the past year as an alternative to heavy traffic jams and low-quality public transportation. But the new transportation method sparked controversy in the country’s biggest cities, such as Rio de Janeiro and São Paulo, which even approved legislation to regulate the mode of transport.  

Tax reform may strangle Brazil’s tech sector

In its current shape, Brazil’s tax reform may increase the tax burden on the IT sector by 189 percent, crippling local companies. The data comes from the Brazilian National Federation of IT Companies (Assespro). 

By the numbers. The current bill in the House proposes a VAT-like tax called Goods and Services Tax (IBS). As we reported in our February 28 Tech Roundup, it establishes the same rate for products and services (such as digital companies). Were it to reach 25 percent, IT companies would be subject to much higher taxes than their current average burden of 5 percent of municipal services tax (ISS) and 3.65 percent on social security contributions PIS and Cofins.

Proposals. Assespro suggests lawmakers adopt a different rate for software and computing services, plus tax credits or exemptions on payroll. According to the association, that’s because the sector’s payroll is twice as much as the national average, as their professionals are highly qualified.

Yes, but … The IT sector already benefits from tax incentives. As we reported in our December 20 Tech Roundup, the law has been tilted to comply with international standards but still allows companies to be able to record tax credits on investments in research and innovation, as long as they prove that at least 60 percent of their components are made in Brazil.
Why it matters. Besides the lack of organization in the government and its political struggles with Congress, the case is another example of how hard it will be to accommodate the private sector’s varied interests in this bill, considered one of the most important proposals of the year.         

Take note

  • Foodtech Fazenda Futuro, famous for its plant-based meat substitutes, has launched a new pork-flavored sausage set to be available for consumers in April. The product uses peas, soy, chickpeas, beetroot, and kelp to reproduce the flavor and texture of pork. The startup, founded in 2019, has been boosting its product portfolio, which already includes meatballs and hamburgers, and already reached an evaluation of USD 100 million. 
  • The Brazilian cloud market grew 30 percent in 2019, a sign of how fast digital transformation is happening in the country, according to cloud provider BR Link and consultancy and research company ISG. The 2019 ISG Provider Lens Public Cloud report shows that service providers who are focusing on medium-sized companies are growing faster as it is easier to migrate smaller structures to the cloud. 
  • As Brazil’s financial markets faced steep volatility amid the risk aversion sparked by the Covid-19 outbreak, investors have been consistently complaining about server malfunctions on brokerage systems. Large firms, such as—part of the XP, Inc. group—have been suffering instabilities. While it may represent steep losses for clients, it also damages companies’ reputations.[/restricted]
Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, she worked as an Editor for Trading News, the information division from the TradersClub investor community.

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