Parliamentarians ask Pacheco to return MP for payroll tax relief

Intensifying pressure on the president of the Federal Senate, Rodrigo Pacheco (PSD-MG), eight parliamentary fronts sent to the leadership of Congress, this Monday (8), a letter requesting the immediate return of Provisional Measure (MP) 1,202/2023 , which vetoes payroll tax relief for the sectors that employ the most in the country.

The MP, announced by the Minister of Finance, Fernando Haddad, on December 28, 2023, revokes the exemption that had recently been approved by the National Congress. With approval, the Legislature maintained 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, in force since 2011 for 17 sectors of intensive labor force in the country.

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

In its place, the Lula government’s MP defines the gradual return of the employer contribution to salaries, in a staggered manner, until 2027. Without making clear the criteria for the choice, it establishes 42 economic activities – and no more sectors – in which the contribution will be reduced. The activities, divided into two groups, will have a CPP reduction of 50% or 25% in the first year, depending on where the activity is located.

In the first group of activities, the government included, for example, activities related to the transport, TV and pay TV sectors. In the second group, book publishing, shoe manufacturing and civil construction.

The MP was harshly criticized by the productive sector, including the Federations of Industries of São Paulo, Rio de Janeiro and Minas Gerais and the Movimento Desonera Brasil, concerned about the possibility of mass layoffs in sectors reburdened by taxation.

Parliamentary fronts highlight the sovereignty of Congress and legal security

The letter sent to Congress is signed by the Mixed Parliamentary Front for Entrepreneurship (FPE), the Parliamentary Front for Commerce and Services (FCS), the Parliamentary Front for the Free Market, the Parliamentary Front for Competitive Brazil, the Mixed Parliamentary Front for the Development of the Electrical Industry and Eletrônica, Parliamentary Front for Women Entrepreneurs, Parliamentary Front for Brazilian Accounting and Parliamentary Front for the Machinery and Equipment Industry.

As justification, the document highlights the “recent deliberation of the National Congress which, through high legal-constitutional sensitivity, directed its analytical and deliberative efforts in a different direction from the Provisional Measure presented, seeking the publicized legal certainty”.

For the executive director of the Free Market Parliamentary Front, Rodrigo Marinho, the government is trying to solve its fiscal problem with this MP, but without thinking about the consequences and the social aspect, further burdening the country’s tax payers. “If the cost is passed on to companies, there will be unemployment and harm to workers,” he said.

The matter may be decided later this week, at a meeting of leaders to be scheduled by the president of the Senate, Rodrigo Pacheco.

MP triggered crisis between Executive and Congress

President Luiz Inácio Lula da Silva had vetoed the exemption approved by Congress, but the veto was overturned in a new vote in December, with a large majority in the Chamber and Senate. The PT member then decided on the MP, announced at the end of the legislative year, which should come into effect on April 1st.

With the announcement, the government contracted a new crisis with the Legislature, which felt affronted by the imposition of the measure. Opposition leaders and other parliamentarians criticized the measure. The deputy leader of the Lula government in the Chamber, deputy José Nelto (PP-GO), was one of the first to state that he will act to overturn the proposal if the president of Congress, Rodrigo Pacheco, does not return it to the government.

Haddad denied that there was disrespect for Parliament and justified the need to avoid the impact of the exemption for this year, of R$18.4 billion in 2024, which was not included in the approved Budget.

Of this amount, the total value of the tax exemption for companies in the 17 sectors would be R$9.4 billion. Another R$9 billion would go to municipalities with up to 156,216 inhabitants due to the reduction in the social security rate from 20% to 8% on employees’ salaries, a benefit also extinguished by the MP. The government needs R$168 billion in extra revenue this year to close the deficit this year, a target set out in the fiscal framework.