Lula threatens to veto exemption if municipalities are maintained – 10/22/2023 – Panel SA

President Lula threatens to fully veto the extension of the payroll tax exemption if Congress does not remove the reduction in municipal social security contributions from the bill currently being processed in the Senate.

The measure is already taken for granted by the president’s direct advisors in Planalto. At the moment, the government is still trying to negotiate the suppression of this benefit to city halls. The additional impact projected by technicians with the program is up to R$20 billion per year for the Union.

Until last year, the exemptions represented almost R$140 billion to the public coffers and only covered 17 sectors of the economy that now need to take a breather after the pandemic.

The benefit has been in effect since 2012 and allows recipients to pay rates of 1% to 4.5% on gross revenue, instead of 20% on payroll.

Originally, the project in Congress extended this benefit for another four years (until 2027).

The impasse with the government began because, in June, an amendment was inserted into the Senate project to include city halls in the list of beneficiaries.

Through it, municipalities with more than 142 thousand inhabitants could start collecting 8% (instead of 20%) for their employees’ Social Security.

Upon reaching the Chamber, this criterion was questioned for discriminating against smaller cities. The rapporteur then included all municipalities, but with progressive rates, varying with GDP per capita. In other words, the lower the GDP per capita, the lower the contribution to be paid.

Planalto assesses that the measure has an electoral bias because, in 2024, municipal elections will take place. There is concern about the use of the machine, which will favor the leaders in Congress, godfathers of the agenda, in their political strongholds.

Another government argument is that, due to the Social Security reform, it was prohibited to adopt measures that reduce the revenue that pays for pensions.

Furthermore, the Ministry of Finance wants to contain expenses to meet the fiscal targets established by the framework.

In Congress, leaders are willing to negotiate. They will try to maintain the measure, but agree to reduce the fiscal impacts. Talks will resume this week.

The sectors covered by the exemption are footwear, call center, civil construction, communication, clothing and clothing, construction companies and infrastructure works, leather, vehicle and body manufacturing, machinery and equipment, animal protein, fabrics, IT (technology information), ICT (communication technology), integrated circuit projects, metro-rail passenger transport, public road transport and road freight transport

With Diego Felix

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