Haddad’s proposal to review tax relief “is not reasonable”, say sectors

The Movimento Desonera Brasil, formed by 17 sectors of the economy, criticized this Thursday (28) the measure announced by the Minister of Finance, Fernando Haddad, to review the payroll tax exemption rules. These sectors employ more than 9 million people and will be directly affected by the government’s decision. In a note, the movement pointed out that changing the current form of tax relief “is not reasonable” and will bring “legal uncertainty”.

Earlier, Haddad announced that the government intends to negotiate with deputies and senators a “gradual reinstatement” analyzed sector by sector. The initiative will be presented through a provisional measure (MP), which comes into force at the time of its publication. On the 14th In December, Congress overturned President Luiz Inácio Lula da Silva’s (PT) veto of the bill that extended the payroll tax exemption for 17 sectors of the economy, including industry and services.

As a result, these sectors maintained the right to tax reductions until December 2027. The movement highlighted that Law No. 14784/23, which extends the exemption, was approved with a “significant majority in the National Congress”. The 17 sectors pointed out that any change to the rule should be discussed via bill and not imposed by an MP.

“It is absolutely not reasonable for it to be immediately altered or revoked through an MP, contradicting a sovereign decision of the National Congress, ratified by both Houses in overturning the presidential veto. Furthermore, the MP brings legal uncertainty for companies and workers on the first day of 2024”, they stated.

The exemption ensures that companies pay rates of 1% to 4.5% on gross revenue instead of 20% on payroll as an employer’s social security contribution. The minister announced the measures in an attempt to reinforce revenue to meet the zero deficit target scheduled for 2024.

The sectors highlighted that the proposals announced by Haddad to improve tax collection “are not clear and signal important changes that were not discussed with Congress, the business sector or with workers’ representatives”, informed the GloboNews.

“For these reasons, we strongly emphasize that the position of the 17 sectors is that any alternative proposals on payroll taxation be forwarded through a Bill or discussed, as planned, in the next stage of the tax reform (taxation on income and employment) that must be forwarded by the government to Congress within 90 days after the enactment of the first stage (consumption taxation)”, they highlighted.

The exemption benefits sectors that are among those that employ the most in the country: clothing and clothing; footwear; construction; call center; communication; construction companies and infrastructure works; leather; manufacturing of vehicles and bodies; machines and equipment; animal protein; textile; information technology (IT); communication technology (ICT); integrated circuit design; metro rail passenger transport; public road transport; and road freight transport.

A People’s Gazetteas a communications company, is among the sectors benefiting from the extension of the payroll tax exemption.

See the full note released by Movimento Desonera Brasil:

“In view of the announcement, made today by the Minister of Finance, that the government will forward, later this year, a Provisional Measure (MP) with proposals to change the current payroll tax exemption policy, the 17 economic sectors currently included in this policy come public to bring their position and contribution to a dialogue that seeks, in a broad and inclusive way, the best proposal for Brazil in terms of generating formal jobs, competitiveness of the economy and public revenue.

Initially, it is important to highlight that the so-called ‘exemption’ is, in fact, a change in the tax base. Since its inception in 2011, this policy has proven to be extremely beneficial for Brazil. As an example, CAGED data shows that, in the period from January 2019 to August 2023 (therefore, before, during and after the pandemic), the 17 sectors included in the policy increased their formal employment by 18.9%, while all other sectors increased by just 13%, a difference of almost 6 percentage points.

These 17 sectors currently employ, with a formal contract, more than 9 million workers, having generated more than 300 thousand jobs in 2023 alone (until August). These are highly labor-intensive sectors, whose payrolls have a high weight in their cost composition. The payroll tax relief policy reduces this cost, undoubtedly being a mechanism for these sectors to employ more and, importantly, in a formal manner.

Consequently, this policy generates more revenue for Social Security, more Income Tax, more payments for FGTS and fewer social costs such as unemployment benefits, for example. In 2022, it is estimated that the additional revenue generated by this policy was in the order of R$22 billion, including R$2.4 billion in additional COFINS-Import revenue at an additional rate of 1% stipulated by the tax relief law itself.

In short, payroll tax relief promotes a virtuous circle: more formal jobs, greater competitiveness of companies, greater total revenue, greater dynamism in the economy, more formal income for workers, greater social inclusion. Law No. 14784/23, which extends the payroll tax exemption for 4 years, was published today in the Official Gazette of the Union (DOU), having been approved with a significant majority in the National Congress.

It is absolutely not reasonable for it to be immediately altered or revoked through an MP, contradicting a sovereign decision of the National Congress, ratified by both Houses in overturning the presidential veto. Furthermore, the MP brings legal uncertainty for companies and workers on the first day of 2024. Furthermore, the proposals mentioned in the press conference today by the Minister of Finance are not clear and signal important changes that were not discussed with the Congress, with the business sector and not with worker representatives. These are proposals that should not be imposed on society without prior broad and comprehensive discussion, through a Provisional Measure.

For these reasons, we strongly emphasize that the position of the 17 sectors is that any alternative proposals on payroll taxation be forwarded through a Bill or discussed, as planned, in the next stage of the reform tax (taxation on income and employment) that must be forwarded by the government to Congress within 90 days after the promulgation of the first stage (consumption taxation). This will allow for a productive debate on the various alternatives and the achievement of the best solution for Brazil in the long term.

The 17 sectors included in the payroll tax exemption policy ratify their commitment to remain fully available, as they always have been, to dialogue with the Ministry of Finance, Congress and worker representatives, debating options, numbers and data that help in the search of the best solutions for Brazil. We believe that Brazil does need to seek broad solutions that reduce payroll costs, which are extremely high in Brazil. This high cost discourages the creation of formal jobs and reduces the country’s competitiveness in the world economy. But it is imperative that this be done through an in-depth discussion with society and with respect to a firm decision by Congress.”

The following signed the document: Abert (Brazilian Association of Radio and Television Broadcasters); Abes (Brazilian Association of Software Companies); Abicalçados (Brazilian Association of Footwear Industries); Abimaq (Brazilian Association of the Machinery and Equipment Industry); Abit (Brazilian Association of the Textile and Clothing Industry); Abratel (Brazilian Radio and Television Association); ABT (Brazilian Teleservices Association); ANJ (National Association of Newspapers); Assespro (Federation of Associations of Brazilian Information Technology Companies); Brasscom (Association of Information and Communication Technology (ICT) and Digital Technologies Companies; CICB (Brazilian Tanning Industry Center); FABUS (National Association of Bus Manufacturers); Fenainfo (National Federation of IT Companies); Feninfra (National Federation for the Installation and Maintenance of Telecommunications and IT Network Infrastructure); IGEOC (Institute for Management of Operational Excellence in Billing).