Business community reacts badly to Haddad’s new tax package – 12/28/2023 – Market

Representatives of sectors affected by Minister Fernando Haddad’s (Finance) package, with new tax measures to increase revenue, received this Thursday’s announcement (28) with concern.

The package will be part of an MP (provisional measure), which will come into force after its publication – which should happen later this year. The sectors claim that the proposals create legal uncertainty and put jobs at risk, even though economists recognize the measures’ revenue potential.

One of the changes consists of gradually reimbursing the payroll for economic activity, as an alternative to extending the full benefit until December 2027. Once published, the MP will revoke the law that renews the payroll tax exemption promulgated by the president of the Senate , Rodrigo Pacheco (PSD-MG), this Thursday.

It is also part of the plan to limit tax compensation to 30% with court decisions above R$10 million. Currently, there is no limit. Another measure concerns the gradual withdrawal of tax benefits from Perse (Emergency Program for the Resumption of the Events Sector), which was implemented during the pandemic.

Among the 17 sectors of the economy benefiting from the exemption is communication, which includes Grupo Folha, the company that publishes the Sheet. Footwear, call center, clothing and clothing, civil construction, construction companies and infrastructure works, among others, are also covered.

The legal consultant for ABT (Brazilian Teleservices Association), Cláudio Tartarini, assesses that the MP takes sectors by surprise and creates insecurity. “The company doesn’t know what it’s worth, these comings and goings in public policies make public policy inefficient. The law was approved with a large majority, it was subject to a veto by the Executive, and this veto was rejected. Using an MP when the process legislation has already occurred, for me, it is unconstitutional.”

He also states that the sector will ask for the maintenance of what was approved by Congress. “The government could propose a bill, as provided for in the tax reform, so that it has time to be discussed. The sector wants this debate to take place, but not in a provisional measure.”

Fernando Valente Pimentel, superintendent director and president emeritus of Abit (Brazilian Association of the Textile and Clothing Industry) demands transparency in expenses, so that taxpayers, individuals and legal entities, can monitor how the taxes they pay are being used.

Senator Efraim Filho (União-PB), author of the exemption bill, says that the publication of the MP contradicts a decision taken by a large majority of the National Congress and that the measure will be resisted.

“Furthermore, it brings legal uncertainty for Brazilian entrepreneurs, who on January 1st will not know which rule to follow, whether the MP or the law approved by Congress. The MP is not the best way, a bill, With these amendment proposals, giving time and deadline for the debate of ideas, it would be a sign that the government wants dialogue.”

In a note, the CBIC (Brazilian Chamber of Construction Industry) states that “limiting payroll tax relief, reducing or even ending it is not adequate for the prosperity of the Brazilian economy. There is no more room to increase the burden on the population and on companies”.

The president of Fiemg (Federation of Industries of the State of Minas Gerais), Flávio Roscoe, called the measures an “extraordinary mistake”.

He states that the exemption is about work, because it penalizes the sectors that employ the most. “Those who work and produce in Brazil pay taxes and are being asked to pay more taxes all the time to cover the fiscal deficit, but those who produce abroad do not pay taxes. This is a mistake that needs to be corrected and we hope to have urgent dialogue with the government.”

Regarding the limitation of tax compensations, Roscoe said that it removes rights already acquired in the Judiciary. “A judicial decision is something unconditional, it is the last resort, there have already been administrative appeals or questions from the tax authorities in court. Now the company wins and cannot compensate. It is an extraordinary mistake”, he says.

The chief economist at Warren Investimentos and former Secretary of Finance and Planning of São Paulo, Felipe Salto, assesses that the set of measures announced makes sense.

“From the point of view of revenue potential, the limitation of tax compensations is the most promising. I welcome the reduction from five to two years in the case of Perse and also the changes in the payroll tax relief program. That is to say, the challenge Fiscal 2024 is quite intricate, and the government is faced with the task of reducing the deficit from one year to the next.”

Regarding the proposal for the employer quota, he says that formal employment will increase robustly with the increase in the economy’s investment rate, which depends on good quality public investments, and not payroll tax relief. “In any case, focusing on the minimum range is good to stimulate hiring in this niche where informality can be high.”

For tax lawyers consulted by Sheetthe measures are worrying and demonstrate the federal government’s desperation to meet the budget target.

“Companies will not let it go unnoticed. There will be legal discussions. Instead of generating the desired increase in revenue, they will only be able to further encourage administrative and judicial litigation”, says Henrique Erbolato, partner in the tax area at Santos Neto Advogados.

According to Thais Veiga Shingai, partner at Mannrich e Vasconcelos Advogados, many companies will be affected by the limitation of tax compensation. “Predictability is also very important for companies as well as for the Union. Companies that already have credit enabled for 2024 and now will no longer be able to use it will have their cash flow impacted,” she says.