Treasury resists bringing forward debate on exemption – 03/18/2023 – Market

Deputies and senators defend that the discussion about a broad payroll exemption and the updating of the Simples Nacional ceiling take place simultaneously with the analysis of the tax reform in Congress.

According to the plans of the Ministry of Finance, the debate would only take place in a second moment, after the changes in taxation on consumption were approved.

The theme was taken by representatives of the FPE (Mixed Parliamentary Front for Entrepreneurship) to Minister Fernando Haddad (Finance) in a meeting last Wednesday (15).

The parliamentarians’ intention would be to take advantage of Congress’ willingness to face the tax debate on consumption, which was banned for almost two years after the mayor, Arthur Lira (PP-AL), extinguished the commission that discussed the changes.

There is a perception that the government should take advantage of the political capital of the first year of President Luiz Inácio Lula da Silva’s (PT) term to tackle thorny issues at once.

According to those who defend the changes, the reform could represent a revenue gain. Some sectors, such as services, even calculate that they would have an increase in the tax burden. Payroll exemption would be one of the instruments used to try to circumvent the resistance of these segments to the proposed model.

“The discussion has to be held in parallel so as not to compromise the reform itself”, defends the president of the FPE, deputy Marco Bertaiolli (PSD-SP). “We already have 17 sectors exempted. Are you going to charge again? It’s impossible. And it doesn’t make sense for you not to exempt the entire economy”, says the parliamentarian.

Bertaiolli’s ally, deputy Joaquim Passarinho (PL-PA) endorses his colleague’s speech. “Who is feeling the most affected by the tax reform? Services, the sector that most gains from payroll tax relief. So it’s a compensation. You have to walk on the side of the tax reform”, he says.

The front proposed to the minister a kind of equilibrium transition in which payroll exemption would occur simultaneously with the increase in the VAT (Value Added Tax) rate for the services sector. One of the numbers cited in the discussions would be a percentage of around 33%.

The final text to be negotiated in Congress must be constructed from two PECs (proposed amendments to the Constitution): 45, by Deputy Baleia Rossi (MDB-SP), which replaces five current taxes (PIS, Cofins, IPI, ICMS and ISS) for a Tax on Goods and Services (IBS); and 110, from the Senate, which proposes a merger of taxes —simplification results in two taxes.

The collection of new taxes on consumption provided for in the reform under discussion in Congress should only begin in 2025 at the federal level and in 2027 for states and municipalities, according to the assessment of the extraordinary secretary for Tax Reform at the Ministry of Finance, Bernard Appy.

Despite the parliamentarians’ plea, the Minister of Finance defends that the payroll exemption be included in the discussions on income taxation, in a second phase of the reform.

“The exemption of the payroll is something for the second stage of the reform, when Income Tax, profits and dividends are discussed, among other topics. The payroll will also enter this second moment”, said Haddad last Monday (13) .

According to interlocutors from the economic team, the strategy is related to a political issue. The idea is to prevent payroll exemption from competing with the first part of the tax reform –focused on consumption–, in which the debate is already more mature.

The processing process for each of the measures is also taken into account by the Treasury. There is a fear that the anticipation of the discussion on payroll exemption will hinder the advancement in Congress of the Lula government’s priority proposal.

Exemption could be voted on a bill, which requires a simple majority of votes, as long as an absolute majority of deputies is present —257.

It is an easier number to reach than that of the tax reform PEC, which requires the approval of three-fifths of parliamentarians (308 deputies and 49 senators) in two-round voting.

The government is considering including exemption in the income tax reform. In the current model, employers pay 20% rates on salaries to finance Social Security, in addition to contributions to the S System and the education salary.

As shown by Sheetsome members of the government defend as a central idea to relieve at least the portion equivalent to a minimum wage (today, R$ 1,302) of the worker’s remuneration.

Today, the government grants the benefit of exemption from wages to 17 sectors, regardless of the remuneration achieved. The policy was instituted during the Dilma Rousseff (PT) government and reached 56 sectors.

The contemplated companies can waive the payment of the 20% rate in exchange for a charge of up to 4.5% on billing. The last extension of the measure took place at the end of 2021, with a deadline until the end of this year.

In addition to exemption, the front argues that the tax combo should include updating the Simples Nacional ceiling due to inflation.

On Wednesday, after leaving the Treasury, Bertaiolli stated that the change in the Simples table will be left out of the changes being discussed by the Chamber, echoing the statement given by Haddad on Monday (13).

This discussion could take place in parallel, defend the parliamentarians. “There’s no way to maintain it without correction, otherwise you’ll have a subSimples. I have five companies and I never leave the level. You tie the guy so he doesn’t grow”, said Passarinho.

A complementary bill that deals with the correction is already being discussed in the Chamber. The text expands the ceiling for gross revenue of the MEI (individual micro-entrepreneur) from BRL 81,000 to BRL 144,913.41, applying an adjustment based on the IPCA accumulated over 16 years (when the National Statute of Micro-enterprises and Small business).

In addition, it changes other tracks. For micro-enterprises, the limit is increased from R$360,000 to R$869,500 per year. In the case of small companies, it goes from R$ 4.8 million to R$ 8.7 million.

The proposal would be voted on at the end of last year, but it stalled without consensus from the PT, who feared a loss of revenue for the Lula government, and from the MDB, which saw an impact on state and municipal revenues.