Bill that makes it possible to continue exempting 17 labor-intensive sectors and municipalities from paying taxes is now on its way to presidential assent

09/12/2024

Despite passing the main text and rejecting amendments, the Lower House adjourned early Thursday without fully approving a bill that ensures the continuation of payroll tax exemptions for 17 labor-intensive sectors and municipalities while establishing compensation mechanisms for the measure. The proposal also includes a gradual reintroduction of taxes for these sectors and municipalities starting in 2025. The low quorum was a key factor in the session’s adjournment.

A new session has been scheduled for this Thursday to consider an agreed-upon amendment to address the Central Bank’s concerns and finalize the text. The bill will be sent to President Lula for approval after these steps.

The main text was passed late Wednesday with the support of 253 legislators, while 67 voted against and there were four abstentions.

The review of the text began on Wednesday night, which was the deadline set by the Supreme Court for the government and Congress to formalize an agreement to maintain the payroll tax-cut program.

Negotiations

Hours before the vote, a meeting between Finance Minister Fernando Haddad, House Speaker Arthur Lira, and party leaders sealed the agreement that allowed for the bill’s consideration.

It was decided that forgotten funds in financial institutions—approximately R$8.6 billion—would have only an accounting effect and would not be included in the calculation of the primary result.

This agreement was made to address the Central Bank’s concerns, which had sent a note to lawmakers the day before expressing worries about incorporating these funds as part of the compensation for the federal revenue loss. According to the Central Bank, such incorporation would not align with its statistical methodology and would contradict guidelines from the public spending watchdog TCU and recent Supreme Court rulings.

The opposition attempted to obstruct the session, but motions to delay the vote were rejected by the majority of lawmakers.

Before the vote, Vivien Suruagy, president of the National Federation of Call Centers, Installation and Maintenance of Telecommunications Network Infrastructure (FENINFRA), expressed concern that the issue might not be resolved within the Suprem Court’s deadline.

“Congress needs to put an end to the legal uncertainty we’ve been dealing with since the government vetoed the tax cut,” she said in a statement.

In a last-minute change, congressman Any Ortiz relinquished her role as rapporteur, which was then assigned to the government’s leader in the House, José Guimarães.

“For about a month, I’ve been urging for this matter to be brought to a vote. Everyone knows the content of this matter. It came to the House days ago and only today was the rapporteur appointed. I warned that the deadline was approaching,” Mr. Guimarães said.

In April, Justice Cristiano Zanin initially suspended the tax exemption, which would have immediately reinstated the tax on the affected sectors. However, a few days later, he issued a new ruling granting 60 days to find compensation sources for the measure—a decision confirmed by the full court. The deadline was later extended until Wednesday.

As the vote extended into early Thursday, the Federal Attorney General’s Office (AGU) requested that the Supreme Court grant an additional three business days for President Lula to sign the bill. “As today is the deadline for the decision’s prospective effect granted by this Supreme Court, it is necessary to grant an exceptional extension of three business days solely to complete the legislative process in its final stage of presidential approval or veto. Therefore, we respectfully request an extension of the suspension period and the prospective effects of the decision for an additional exceptional three business days, solely to finalize the legislative process as regulated by Article 66 of the Constitution (approval/veto),” the request said.

Current Situation

Currently, the payroll tax-cut model allows for the payment of rates ranging from 1% to 4.5% on gross revenue. This tax substitution model is more suitable for labor-intensive sectors. Together, the 17 exempted economic sectors generate around 9 million jobs.

Under the bill proposed by the economic team after an agreement with the National Congress, the payroll tax will gradually return starting next year. It will be 5% in 2025, 10% in 2026, 15% in 2027, and 20% in 2028.

The payroll-tax cut model for economic sectors was introduced in 2011 to stimulate job creation. Since then, it has been extended several times. Last year, Congress extended the measure until the end of 2027. Additionally, it allowed municipalities with populations under 156,000 to reduce their social security contributions to 8% from 20%.

The text was vetoed by President Lula, but Congress overrode the veto, leading to the series of events that reached the Supreme Court.

*Por Marcelo Ribeiro, Raphael Di Cunto, Valor — Brasília

Source: Valor International

https://valorinternational.globo.com/