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a company wants—and it should—to keep its tax-free status.So far, everyone is treating ebooks as tax-free products,just like their printed counterparts. Despite there being nowritten law guaranteeing that this will continue, everyoneis trusting in the spirit of the law. When it comes to ereaders,though, no one expects to sell or import them tax-freeunless the National Book Law is amended to include dedicatedreaders.The Brazilian senate is still discussing a bill that would officiallymake both ebooks and dedicated E-Ink readers taxfree.If the bill passes, the prices of E-Ink Kindles, Kobo devices,and Nooks would have to come down steadily. Importationtaxes on dedicated e-readers could be as highas 60 percent depending on how the ereader is categorizedwithin the broader field of electronics.What really complicates taxes in Brazil relates more closelyto ebook distribution models. Although books are tax-free,services are not. If one buys and sells books, no tax is involved,but if one classifies the distribution work as a service,one may pay up to a 14.25% tax on revenues. This isknown as ISS and PIS/Cofins. Of course, this challenges theagency model. Understandably, Brazilian publishers wantto control retail prices of ebooks to avoid deep discounting,and to avoid deep discounts, the agency model wouldbe perfect, especially if we assume only a standard 30%U.S.-style discount, which is much lower than the typical50 or 55% that big Brazilian retailers demand from publishers.This is what everyone thought at the beginning ofebook trade until an accountant told everyone that taxesshould be paid using the agency model. As if that were notenough, the market is still discussing whether the agencymodel is even legal in Brazil, and no one has emerged witha definitive answer.So far, the contracts signed by the large Brazilian publisherstend to follow the wholesale model, with the exceptionof Apple, which is technically selling Portuguese booksfrom abroad, making it easier to use the agency model.When negotiating with Amazon, the big publishers wereable to include a discount limitation on the contracts, creatingconsumer price control in a wholesale deal.Because books are not technically tax-free yet, big Brazilianpublishers are avoiding exporting to them. That is why agreat part of the Brazilian ebooks available at the Amazonlocal store, for instance, is not available for American andEuropean customers. Exports will require significant additionaltax control and paperwork, so the publishers havedeclined to take further risks for the small revenues thatthey can expect.eGovernmentIf tax issues were not a good enough reason for digitalpublishing and bookselling executives to visit Brazil regularly,the power of federal government book purchasing is.As we saw above, the public sector generated over 26.4%of publishers’ revenue in 2012, and the truth is that theebook revolution will only get major traction in Brazil whenthe government decides to go digital. However, that mayhappen faster and more easily than many may anticipate.First, one must remember that the Brazilian governmentis strongly emphasizing its digital agenda. Elections aredigitally controlled nationwide, and winners are announceda few hours after any ballot. The Brazilian InternalRevenue Service has been receiving income tax declarationselectronically for years. The inflationary 1980s and1990s forced not only the banks but the whole financialsystem to develop online services long before the Internetwas a reality, and that included the government. That beingsaid, the Brazilian government will undoubtedly embraceebooks as soon as the savings to be expected fromsuch an innovative move are clear.Actually, digitized government book purchasing in Brazilhas already begun. In November 2011, the federal governmentincluded digital content in the 2014 edition of itsPrograma Nacional do Livro Didático (PNLD), which acquiresall educational books used in public schools. Initially,the plan only proposed buying DVDs. However, for the2015 edition, the government asked specifically forebooks, and educational publishers are delivering digitalcontent for evaluation in the second half of 2013. Since thePNLD alone purchased U.S. $537 million worth of books in2012 (again, more than 22% of publishers’ revenues), thepotential here is great.However, the PNLD is not the only potential bulk purchaser.In 2012, the Ministry of Education bought 600,000 tabletsfor public schoolteachers. In the beginning, no attentionwas given to the content that such devices would carry,and the tables have not been distributed yet. More recently,the federal government started a bidding processto choose the reading platform to be used in these devices.Amazon and Saraiva are already approved, but the processhas not ended yet. It is hoped that the tables will reach theteachers’ hands before they become obsolete.65 The Global eBook Report