New MP without repayment “helps to calm” Congress, says Efraim

The author of the law that extended the payroll tax exemption for 17 sectors of the economy until 2027 and leader of União Brasil in the Senate, Efraim Filho (PB), said this Tuesday (16.jan.2024) to Power360 that sending a new MP (provisional measure) to Congress without the payroll tax reimbursement part will help to “to calm down” the Legislature. Congressional leadership expects the government to retreat from MP 1,202 of 2023 and present a new text repealing this section.

“It helps to calm down, because the political decision has been made, Congress’s decision applies. Now it’s just a matter of adjusting the procedure”said the congressman.

The message about what Congress wants was given on Monday (15 January) by the president of the Senate, Rodrigo Pacheco (PSD-MG) to the Minister of Finance, Fernando Haddad, during the meeting in which they discussed the topic. The final decision on what will be done will be made when the Legislature returns in February.

MP 1,202 of 2023, which deals, among other points, with the gradual reinstatement of payroll in 17 sectors of the economy, was sent by the government on December 28, 2023 and faces resistance in Congress. Most Senate leaders, including Efraim, publicly advocated last week for the president of the Upper House to return the text. The measure expires on April 1st. Read the complete of the text (PDF – 100 kB).

That week, Pacheco, Jaques and the Executive Secretary of Finance, Dario Durigan, met and began negotiations on how to resolve political resistance in relation to the provisional measure. A day earlier, the president of the Senate met for 2 hours with the president Luiz Inacio Lula da Silva (PT). He told the Chief Executive that the measure would not pass as it was.

The government has not yet officially taken a position on sending a new MP. Upon leaving Haddad's meeting with Pacheco on Monday (January 15), the leader of the Government in the Senate, Jacques Wagner (PT-BA), said that any decision on the provisional measure should only be taken definitively upon the return of the legislative recess, on February 1st, which gives the government time to further negotiate what the discussion will be like.

The expectation is that in the new text there will be no debate on payroll tax relief and that the government will respect the extension of the benefit for the 17 sectors until December 31, 2027. The section of the provisional measure that limits credit compensation tax obtained by companies through a court decision must be resubmitted in a new MP.

Now the point that abolishes until 2025 the tax benefits granted to event promotion companies via Persian (Emergency Program for the Resumption of the Events Sector) must be sent as a PL (bill). The program was created during the pandemic.

UNDERSTAND MP 1,202

This provisional measure was announced by Fernando Haddad in December. It would be valid immediately. There was strong pressure from the private sector and mayors, who would be affected. The economic czar backed down and lowered the MP into effect only from April 1st. Here are the 3 items contained in the proposal to increase tax collection:

• reimbursement of payroll – determines that 17 sectors of the economy and cities with up to 142 thousand inhabitants collect the full amount of payments to the INSS on the salaries of their employees. Amount to be collected: R$25 billion (read more below);
• tax credits via court – companies go to court and manage to obtain measures to avoid paying taxes. This type of strategy would be repelled by the MP. Amount to be collected: R$ 20 billion;
• benefit for the events sector – because of the pandemic, companies that hold events received many facilities. The MP would end everything by 2025. Amount to be raised: R$ 6 billion.

TAX IMPACT

Payroll tax relief is expected to cost R$9.4 billion in 2024, according to the Ministry of Finance. The value is the same as what was projected for 2023. The most recent data from the Federal Revenue Service shows that the waiver cost R$7.36 billion from January to November 2023.

The payroll tax relief project will have an additional cost in 2024 for a reason that has no relation to the 17 sectors. The text changed the social security contribution rate from 20% to 8% for municipalities with up to 142 thousand inhabitants. The fiscal impact will be R$9 billion, according to the government, which will bring the total waiver of the text to R$18.4 billion.

The Minister of Finance, Fernando Haddad, said in December that the bill, instead of R$18.4 billion, would be R$25 billion. He didn't explain the reason. O Power360 contacted the economic team also in December 2023 to obtain an explanation, but there were no answers about the real impact of the measure until the publication of this text.

The exemption covers 17 segments of the Brazilian economy. The list is varied and includes sectors such as footwear, textile industry, communications, information technology, road transport, call center and civil construction.

Here is the infographic with the benefited sectors:

WHAT THE GOVERNMENT WANTS

The Ministry of Finance considers “unconstitutional” the payroll tax relief. It is based on a provision in the Constitutional Amendment for Social Security Reform, enacted in 2019. The text prohibits, in the Treasury's view, the extension of the tax benefit.

Firstly, Haddad said he would call the STF (Supreme Federal Court) to review the issue – a possibility that has not yet been ruled out. Afterwards, he adopted a set of measures and the gradual reinstatement of the payroll, the MP. 1,202. Among the actions announced are:

• reduction of the employer's quota on the payroll – the rate will be between 10% and 15% (currently 20%) on up to 1 minimum wage and will benefit companies that are part of one of the 42 economic activities covered in a provisional measure to be published;
• gradual extinction of the Perse (Emergency Events Sector Resumption Program);
• annual limitation on offsetting tax credits obtained for companies by court decision – will include credits above R$10 million and in up to 5 years.

The special secretary of the Federal Revenue, Robinson Barreirinhas, said that the estimated impact of the MP is R$20 billion. The text is seen as fundamental for the government to be able to close its accounts for 2024. Haddad said it will be a “problem closing the Budget” with the exemption.