Haddad now says that overturning the MP for re-encumbrance will cost R$ 32 billion

The Minister of Finance, Fernando Haddadsaid this Monday (16.Jan.2024) that the fiscal impact of the payroll tax relief after the overturn of the MP (provisional measure) 1,202 of 2023 –which deals with the re-encumbrance of payroll in 17 sectors of the economy, the reduction of the social security rate for cities with up to 142.6 thousand inhabitants and also lowers other rules to increase tax collection– will be R$32 billion. This is a new estimate brought by Haddad on the topic.

Here's how much it will now cost in the minister's accounts:

• payroll tax relief – extending the benefit to companies (R$ 12 billion) and the part of cities (R$ 4 billion) will result in a tax waiver of R$16 billion;
• Events Sector Emergency Resumption Program – because of the pandemic, the Persian was created to alleviate losses in the sector, which was at a standstill due to long periods in which gatherings were prohibited: companies only settled tax and social security debts “according to your ability to pay”. In other words, everything was lost to sight. If maintained in full this year, the program will have a fiscal impact of R$16 billion.

The new numbers presented from How much annual revenue would you lose with the exemption? of the sheet differ from values ​​previously mentioned by the minister. First, it was said in R$ 18.4 billion. Then, at the end of December, without explaining, Haddad he appeared with the number of R$25 billion. Now, out of nowhere, it has reduced to R$16 billion. Detailed spreadsheets were never presented to explain how these values ​​are estimated.

In an interview with journalists on Tuesday night (January 16), Haddad said that the values ​​are outside the Budget. The head of the Treasury stated that Perse “must be reviewed”.

Fernando Haddad also spoke about the proposal to gradually eliminate exemption from company payrolls. He said he presented the measure so that it could be “expiring slowly” and, thus, did not affect the benefiting sectors.

Regarding the part that involves the municipalities, Haddad said he will talk to the president Luiz Inácio Lula da Silva (PT) on Wednesday (January 16) about this. “There has been a commitment from us, since last year, that we will sit down with municipal representatives to find a path that fits the budget”he stated.

On Monday night (January 15), Haddad met with the president of Congress, Rodrigo Pacheco (PSD-MG), to discuss a solution for the MP 1,202 of 2023. The leader of the Government in the Senate, Jacques Wagner (PT-BA), also participated in the meeting.

The minister said this Tuesday (16 January) that he spoke briefly by telephone with the president of the Chamber, Arthur Lira (PP-AL), on the subject. Haddad stated that progress has been made, but that he intends to meet with Lira by Friday (19 January) in person.

According to him, there are “willingness to present the numbers and present alternatives so that we can accommodate this in the best possible way”.

ALTERNATIVES

Taxing international purchases of up to US$50 could return to the government's agenda in 2024. The proposal would act as an alternative to tax collection in view of the imminent return of the MP (provisional measure) 1,202 of 2023which gradually reinstates 17 sectors of the economy from April 2024. When asked about the topic this Tuesday (16 January), Haddad said he had read articles on the subject and was willing to listen to arguments.

O Power360 found that the resumption of taxation on international remittances was defended by senators last week in a meeting. The Ministry of Finance is also evaluating this possibility. In government accounts, the amount to be collected from the tax would be R$2.9 billion.

A Fiemg (Federation of Industries of the State of Minas Gerais), however, says that the value is underestimated. Second study (complete – PDF – 1 MB) sent to Power360 by the entity, the amount to be collected can be much greater, reaching up to R$ 19.1 billion.

Congressmen also considered reducing the electoral fund as a form of compensation. For 2024, resources reserved to finance campaigns reach R$4.9 billion.

Rodrigo Pacheco criticizes the value. Consider a “big mistake” the amount channeled to mayors and councilors in the 2024 elections. If an agreement is reached, half could go to the government's coffers. As a result, the amount to be transferred for compensation will be R$2.4 billion.

The new revenues total R$5.1 billion and would partially cover the exemption for the private sector. The cost estimated by the Federal Revenue of the tax waiver of the 17 sectors in 2024 is R$9.4 billion.

“HIGH LEVEL” DISCUSSION

On the afternoon of Monday (January 15), the head of the Treasury had said that he would present to Pacheco the calculations for tax relief on 17 sectors of the economy and the impact of reducing the social security rate in municipalities with up to 142.6 thousand inhabitants. Haddad declared that he was ready to start a “high level discussion” with Congress.

“I asked the IRS to reestimate it. The first step I will take is to inform President Rodrigo Pacheco of what is not foreseen in the Budget and was approved”, he declared in an interview with journalists at the Treasury.

was asked about the values, but preferred not to answer: “I'll take it to him [Pacheco]”. Haddad signaled that maintaining the tax benefit would be a lack of commitment to the Budget approved in Congress for 2024.

When asked whether it would be possible to impose a federal tax on purchases of up to US$50 in e-commerce international, Haddad declared that he spoke with Pacheco “sometimes” and who read news about “commitment to the approved Budget”.

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 142.6 thousand inhabitants collect the full amount of payments to the INSS on the salaries of their employees. Value of the fiscal impact in 2024, according to Haddad: 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. Value of the tax waiver this year: 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.