MP that annuls payroll tax relief affronts Congress and creates insecurity

The announcement made this Thursday (28) by the Minister of Finance, Fernando Haddad (PT), that the government will issue a provisional measure (MP) to change the payroll tax exemption in some sectors of the economy was evaluated by parliamentarians as contrary to the will of the National Congress. This is because the Legislature had approved a bill this month extending the exemption in 17 sectors of industry and services until December 2027.

The new rule announced this Thursday by the government may come into effect from January 1st and, in practice, will again burden the payroll and increase companies’ costs. The issuance of the provisional measure will bring legal uncertainty to the country’s business environment, as businesspeople may have doubts about which standard to adopt.

The MP opposes Bill 334/2, sanctioned this Thursday (28), which extended payroll tax relief for 17 sectors until 2027. The initiative had been fully vetoed by President Luiz Inácio Lula da Silva (PT), but Congress overturned the presidential veto on December 14th.

Author of the bill that guaranteed the extension of the exemption, senator Efraim Filho stated that the provisional measure announced by Haddad will suffer resistance from the start in both the Chamber and the Senate. “The publication of the MP contradicts a decision taken by a large majority by the National Congress”.

Representative Any Ortiz (Cidadania-RS), who drafted the bill in the Chamber that exempts payroll, also sees the measure as contrary to the will of Brazilians. “The issuing of this MP by the government is going against the will of Congress, which represents all Brazilians, and is still causing enormous legal uncertainty.”

Provisional measure can replace law approved by Congress

As Cristiano Noronha, from Arko Advice, a government relations strategy and situation analysis company, explains, the current exemption would end on December 31st, and bill 334/2 reestablishes the rule from January 1st.

“But according to our legal system, a subsequent law replaces a previous law, and a provisional measure has the power of law. So, it could eventually revoke this law that was enacted by the National Congress, and then what will be in force is the provisional measure”, he states.

He also highlights that the National Congress only returns to parliamentary activities on February 1st. In other words, if the provisional measure is published later this year, it will already be in force throughout the month of January.

From February 1st, the measure will need to be considered by Congress. Initially, the MPs have a validity period of 60 days after their publication in the official gazette, a period that is automatically extended if their vote is not completed in the Chamber and the Senate.

If Congress does not begin the evaluation procedures 45 days after the publication of the MP, it becomes urgent and stops the entire agenda until it is voted on. Therefore, if it is published on January 1st, the Chamber and the Senate will have approximately 15 days to begin their assessment after returning from recess, in order to avoid blocking the agenda.

Resistance in Congress

Any Ortiz states that the initiative will suffer resistance not only from the economic sectors, “but also from the National Congress, which finds itself disrespected in the face of an almost unanimous decision” – referring to the wide voting margin for the approval of the bill that extends the exemption.

Likewise, deputy Marcel Van Hattem (Novo – RS) stated that he will work in the Chamber of Deputies to overturn the measure. He assesses that the MP is yet another way that the government is seeking to try to cover the gap in public accounts, which reached 1.08% of GDP in the 12 months ending in October, according to data from the Central Bank. According to Van Hattem, the government is passing on the cost to the private sector.

One way for the government to avoid resistance from congressmen would be to send a bill addressing the issue. The measure was even suggested by Efraim Filho. “A bill with these proposed changes, giving time and deadline for the debate of ideas, would be a sign that the government wants dialogue with the National Congress”.

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

Companies will be able to litigate the issue

The senator also reinforced that the measure does not contribute to the country’s legal security. “[A medida] brings legal uncertainty for the entrepreneur, who on 01/01 will not know which rule to follow, whether that of the MP or the law approved by Congress and published today”.

Representative Any Ortiz endorses that, with four days left until the start of the year, employers will not know for sure which rule to follow. “These government actions further harm our business environment and put jobs and investments at risk.”

Noronha assesses that the measure really brings legal uncertainty to the Brazilian business environment, since there was a benefit authorized by the National Congress and the government, in the last week of the year, announced a new rule.

In addition to having to understand the new rule, companies can appeal to the Federal Supreme Court (STF) if they feel that it is more harmful than the one approved by Congress.

The unpredictability of the position of Congress and the STF in relation to the MP increases legal uncertainty in the country. What suffers, once again, is the country’s business environment, “a very complex thing that is difficult to predict, which is very bad for business planning”, says the analyst.

Zero deficit target

During a press conference in which he announced the MP, among other actions proposed by the economic team, Haddad said that the objective is to increase government revenue in order to eliminate the fiscal deficit in 2024 – this year, the amount was in deficit by R$ 130 billion.

According to the minister, a sector-by-sector analysis was carried out so that the re-encumbrance is gradual. He ruled out that the MP is an affront to Congress. “Yesterday I heard a comment that it is an affront to Congress. There is no such thing,” he stated.

The government has signaled that it is against tax relief, whether in the minister’s speeches or in Lula’s own veto. Noronha believes that, for this reason, the government’s position would not be a surprise to Congress.

“So, to the extent that the government proposes an alternative, not a simple rejection of the issue of tax relief, in a certain way, it means that Congress does not receive it with such affront”, he assesses.

But issuing an MP sounds more like an imposition than an alternative proposal. Political scientist and legislative advisor at Malta Advogados, Luiz Felipe Freitas, sees the measure as a “forced act” by the government. He states that, as it was announced, the MP can be conflicting and confusing.

“Despite a good relationship built by Minister Haddad with Parliament, the government still has the objective of zero deficit, but the re-encumbrance is already an overdue issue and the government lost the vote”, he explained.