Tax relief generates a ‘war of narratives’ between the government and affected sectors, says tax expert

Rádio Itatiaia interviewed Dr. Eduardo Maneira to comment on President Luiz Inácio Lula da Silva's (PT) veto of the bill that provided for the extension, until 2027, of the payroll tax exemption for 17 economic sectors.

Exemption from payroll generates ‘war of narratives’ between government and affected sectors, says tax expert

While parliamentarians try to overturn Lula's veto on a project that extended the measure, the government seeks to calm businesspeople with the promise of an alternative proposal

By Guilherme Peixoto

02/12/2023

President Luiz Inácio Lula da Silva's (PT) veto of the bill (PL) that provided for the extension, until 2027, of the relief on payrolls of 17 economic sectors have generated controversies between the Palace do Planalto and part of the members of the National Congress. There are divergences in the assessment of the measure's impacts on the labor market.

If Lula's veto is not overturned by the Legislature by December 31st of this year, the exemption, in force since 2011, will no longer be valid. The mechanism allows companies in areas such as construction, communication and information technology, as well as the textile, automotive and footwear industries, to replace the collection of 20% tax on payroll with rates of 1% to 4.5% on gross revenue.

For lawyer Eduardo Maneira, associate professor of Tax Law at the Federal University Rio de Janeiro (UFRJ), director of the Brazilian Association of Financial Law (ABDF) and tax coordinator at the Escola Superior de Advocacia Nacional (ESA), there is a “war of narratives” about the exemption of monthly salaries.

“The government claims that this exemption did not represent an increase (in jobs) or guarantees of employment, but the affected sectors say that it did. It is more a question of economic policy than of taxation itself”, he says, to Itatiaia.

The exemption appeared on a temporary basis and costs, annually, more than R$ 9 billion to public coffers. When dealing with the topic, Eduardo Maneira cites tax reform, another topic to integrate the country's economic agenda. The Minister of Finance, Fernando Haddad (PT), believes that the law formalizing the institution of two Value Added Taxes (VAT) will be enacted later this year.

“This bill approved in Congress was vetoed in its entirety by President Lula, under the justification that the government will deal with this after approving the tax reform. So, it is not known whether it will come along the same lines as what was vetoed, but the government understood that, until PEC 45 (of the tax reform) is approved, it should not make other changes, thinking of a measure that looked at the whole — and not sectorally”, points out the lawyer.

Pressure on Congress

Last week, leaders of 11 parliamentary fronts of the National Congress presented a manifesto claiming the overturn of Lula's veto on tax relief. The group wants the president of the National Congress, Rodrigo Pacheco (PSD-MG), to discuss the matter at the next joint meeting between federal deputies and senators.

Senator Randolfe Rodrigues (no party-AP), leader of the government in the Legislature, tried to calm the situation.

“Minister Haddad has already opened discussions with the different sectors, and has the idea of presenting an initiative, either through a bill or provisional measure, that will be an alternative to the issue of tax exemption”, he assured.

Despite this, voices against the repeal of the measure fear the loss of 1 million jobs in the country.

“We are aware that the government must send a measure to replace the payroll tax exemption. However, since no guidelines for the measure were presented, and considering that the incentive has an end date in December, we understand that overturning the veto is the best way to provide security and guarantee the jobs that will be affected by the veto”, defended deputy Domingos Sávio, from PL of Minas Gerais.

Although it is still necessary to wait for the legislative decision regarding the end, or not, of the exemption, Eduardo Maneira projects a possible scenario after the repeal of the measure.

“In terms of taxation, obviously the social security contribution must be levied on the payroll. In all exceptions, there is a characteristic of being temporary. This was taking on the appearance of being permanent. So, in theory, we should return to the normal regime, in which, on the payroll, a social security contribution is levied based on the value of the salaries. Even after the approval of the reform, I think this will be the way forward”, conjectured.

https://www.itatiaia.com.br/editorias/politica/2023/12/02/desoneracao-da-folha-gera-guerra-de-narrativas-entre-governo-e-setores-afetados-aponta-tributarista