MEI fails to focus on low income and fund retirement, say analysts – 03/25/2023 – Market

Although the MEI (Individual Micro-Entrepreneur) was designed to expand the formalization and social security inclusion of low-income workers, less than half (43.6%) of its participants have a work income of up to two minimum wages, while 56, 4% earn above that, shows a study by FGV Ibre (Brazilian Institute of Economics of the Getulio Vargas Foundation).

The survey, based on data from the Continuous National Household Sample Survey (PNAD) in the third quarter of 2022, as well as a government report, point to the need for the program to be reassessed in order to meet its objectives,

MEI is a modality of the Simples Nacional tax regime that exempts registration and tax bookkeeping costs and reduces the tax burden and social security contribution of micro-entrepreneurs with annual gross income of up to R$ 81 thousand and with up to one employee, provided that they do not hold a stake in another company as a partner or owner.

This alternative was designed with three main objectives: to boost the formalization of micro-entrepreneurs, help to include self-employed people with low contributory capacity in Social Security and increase social inclusion.

Throughout the pandemic, the modality accelerated to an average of 1.7 million new subscribers per year, from 2019 to 2022, reaching 14.8 million subscribers last year.

Originally, the annual gross income limit for eligibility was BRL 36,000 per year, an amount increased to BRL 60,000 in 2012 and BRL 81,000 in 2018. In Congress, there is a proposal under discussion that increases it to BRL 144,900 the billing ceiling and allows the hiring of two employees, instead of one.

“The targeting problems may be, at least in part, the result of the excessive expansion of the annual billing ceiling. The almost symbolic value of the rates would require that the focus be maintained on a more vulnerable population, with lower income from work”, pointed out one November report by the Council for Monitoring and Evaluation of Public Policies, still under the Bolsonaro government.

Less than half have an income of up to two salaries, according to a survey

In addition to the breakdown by income, Ibre researchers observed that 60.2% of MEI (self-employed workers, with CNPJ and social contribution) were men, mainly aged between 30 and 39 years (29.8%).

Of these, 43.4% had completed secondary education and 31.3% had completed higher education — only 13.4% had at most incomplete primary education.

“We don’t defend ending the MEI and saying that everything is wrong, but improving and making it more efficient, fine-tuning a public policy that should have this objective of inclusion”, says one of the authors of the study, FGV researcher Ibre Fernando Veloso.

The lower participation of low-income people can be explained, according to the researchers, by the weight that the monthly contribution, although small, has on the family budget.

“One hypothesis of what may be attracting the highest income worker is being able to pay taxes in a simplified and cheaper way than he would pay if he were employed. The company pays the contribution above the full salary and the worker will only receive the social security cap Pejotization is a decision that usually comes from the company”, evaluates Veloso.

Created in 2008, MEI also gives access to a formal CNPJ registration, which gives access to benefits and credit modalities aimed at companies.

A sample survey by Sebrae carried out in 2019, before the pandemic, which pointed out that only 32% of MEI in activity were informal before entering the modality and about two thirds already acted as formal in some way before registration.

In February, the Minister of Labor, Luiz Marinho, said that the government intends to reassess the rules of the MEI to facilitate hiring with a formal contract and prevent fraud.

“The minister [do Planejamento] Simone Tebet has clearly signaled that she wants to evaluate government programs, and the Treasury has expressed an interest in taxing income and increasing revenue. Nobody is against the inclusion of low-income workers or wants to pay more taxes. But if the government’s desire is to focus, it should do something”, says Veloso.

Sustainability of future retirements worries researchers

The social security subsidy is another factor that arouses concern. The researchers point out that the social security contribution corresponds to 5% of the minimum wage and guarantees the subscriber a future benefit of one minimum wage. Until 2011, this percentage was 11%.

According to the Ibre study, the participation of MEI taxpayers in Social Security increased from 0.02% in 2009 to 9.28% in 2021.

Ibre also points out that, although the MEI offers social security benefits at a low contribution rate, less than 40% of those registered contribute regularly. “This suggests that it will be very challenging to increase the contribution rate to the level that would make the MEI pension sustainable.”

The researchers Rogério Nagamine Costanzi and Otávio Guerci Sidone, in the book “Para Não Esquecer – Public Policies that Impoverish Brazil”, reinforce that the increase in the income limit and the decrease in the contribution lead both to a loss of focus and to the social security imbalance.

Both calculated that, considering the contribution made in 2014 and the estimated future expenditure on old-age pensions, the MEI would generate an accumulated deficit of R$464.7 billion by 2060, considering constant values ​​for the minimum wage.

“Despite the results achieved, the current design of the MEI, with a 5% social security contribution rate, in addition to not being cost-effective in relation to the initial design, also introduced a risk to the sustainability of the social security system due to the high built-in subsidies”, says the government report, 2022.

The impact on Social Security should start to appear more clearly from 2030 onwards, when a greater number of MEI subscribers will start asking for retirement, says Veloso.

“The path seems to be a redesign and a study on the feasibility of increasing the 5% contribution, as the government itself suggested last year.” So that the increase does not discourage low-income professionals from joining, the government can also reinforce additional benefits for this public, he says.