Pacheco says that payroll tax relief will be extended

The president of the Senate, Rodrigo Pacheco (PSD-MG), said this Friday (19) that the payroll exemption for 17 sectors will be extended. Therefore, there will no longer be a gradual reinstatement of the social security contribution established by the government in Provisional Measure 1,202. According to him, the reduction in the social security rate from 20% to 8% will also be maintained for municipalities with up to 156,216 inhabitants.

“The exemption from the payroll, having been a law approved by Congress, and with a veto overturned, it will be valid. There is a commitment from the federal government to reissue the MP, removing the exemption from the text”, stated the president of the Senate during Brazil Economic Forum, in Zurich, Switzerland. “The way out was through dialogue and political construction,” he said.

After Pacheco’s speech, Finance Minister Fernando Haddad discussed the agreement in an interview with journalists in Brasília. He said that he had not yet seen Pacheco’s statement, but stated that the government’s position is not to revoke the MP and insist on gradual reinstatement.

“With regard to re-encumbrance, we insist that the best principle is gradual re-encumbrance, as was done with all other benefits related to taxes on consumption. And if it applies to everyone, to all special regimes in the country – including state ones, ICMS, including municipal ones, ISS – wouldn’t it be a good principle for a tax like the social security tax, which supports Social Security?”, said Haddad. “So, we took this to the consideration of the two presidents (of the Chamber and the Senate) and we will discuss the best way to proceed”, he added.

Hadad and Pacheco had gone at the beginning of the week, together with the department’s executive secretary, Dario Durigan, to discuss the issue. This Thursday (18), Haddad also met with the president of the Chamber of Deputies, Arthur Lira (PP-AL), to discuss the matter.

The minister said that President Luiz Inácio Lula da Silva (PT) will meet personally with Pacheco to discuss the MP’s four themes. The exemption and social security benefits for municipalities, which were discussed by Congress, will be treated differently from Perse and tax compensation, which did not pass through the Legislature.

Pacheco had said that the government should send a new MP with the other points of the original measure, such as the review of the Emergency Program for the Resumption of the Events Sector (Perse) and a limit on tax compensation through credits obtained through the courts.

The aforementioned agreement to maintain the exemption, however, did not prevent the Ministry of Finance from publishing, on Thursday (18), a report in which it makes a series of criticisms of the tax exemption. The report says that it is expensive, inefficient and results in a transfer of income to the richest.

MP provided for gradual exemption and new activities benefited

In October, Congress had approved the extension, until 2027, of the payroll tax exemption for 17 sectors of the economy. And it also exempted city halls in small towns. At Haddad’s request, however, President Luiz Inácio Lula da Silva (PT) vetoed the extension. In December, Congress overturned the presidential veto by a wide margin. But, in the last days of the year, with Congress in recess, the government issued MP 1,202, revoking the extension of the tax waiver.

The exemption rule extended by Congress last year provides for the replacement of the employer’s social security contribution (CPP), of 20% on employees’ first minimum wage, with rates of 1% to 4.5% on gross revenue.

With MP 1,202, the government established a tax exemption only on the range equivalent to the minimum wage, and with social security rates of 10% to 15%. Instead of 17 sectors, the government created two groups of activities.

Although it has apparently given up on the re-encumbrance, the government nevertheless insists on maintaining the limits of tax compensation and review of Perse. For tax compensation, the proposal creates a limitation on the payment of monthly debts of up to R$10 million to companies. The initiative has been classified as a “default” by the business community, and experts highlight the legal uncertainty of the measure.

Perse, a program created to help the events sector during the pandemic, which had been extended by Congress, will be gradually discontinued over the next two years. The government claims that the program has already fulfilled its objective.

Pacheco stated that if the MP only dealt with the exemption, it would be returned. And he argued that it would be legitimate for the other points to be sent via bill.