Chamber approves urgency for project that extends tax exemption and provides for compensation this year

The Chamber approved on Monday night, the 9th, an urgent request for the bill that extends the payroll tax exemption for companies and municipalities and provides for compensation for tax breaks this year. There were 293 votes in favor, 118 against and four abstentions, with opposition members obstructing the process. The proposal can now skip the committee analysis stage and be voted on directly in the plenary, which should occur starting this Tuesday, the 10th.

This week, the Chamber of Deputies is holding its third and final concentrated voting effort during the municipal elections. The Speaker of the House, Arthur Lira (PP-AL), has allowed remote sessions, meaning that there is no need to be present in Brasília. Deputies can now vote using an app. The deadline set by the Supreme Federal Court (STF) for a consensual solution on the tax relief ends this week.

On August 20, the Senate approved the tax relief bill, which extends the benefit to 17 sectors of the economy and small and medium-sized municipalities. The proposal provides for a gradual re-taxation for companies and municipalities until 2027.

The tax relief bill also includes compensatory measures that will make up for the loss of R$25 billion to the federal government’s coffers this year. These include: updating income tax assets; repatriation of assets held abroad; renegotiation of fines applied by regulatory agencies; thorough examination of the INSS and social programs; use of forgotten judicial deposits; use of forgotten resources; and the program to register tax benefits granted by the government.

In the Senate, the rapporteur and government leader, Jaques Wagner (PT-BA), said that the measures should generate between R$25 billion and R$26 billion for the public coffers and specifically resolve the fiscal hole in the 2024 accounts, since many of these proposals are limited and will not have effects in the following years.

The text of the payroll tax relief follows the agreement already signed with the productive sectors, which provides for a gradual re-taxation starting next year and running until 2027. The tax relief in 2024 replaces the employer’s 20% social security contribution on payroll with a tax of 1% to 4.5% on gross revenue. Starting next year, employers will be subject to a hybrid tax, which will mix part of the contribution on payroll with the tax on gross revenue.

– In 2025, companies will pay 80% of the tax rate on gross revenue and 25% of the tax rate on payroll.

– In 2026, companies will pay 60% of the tax rate on gross revenue and 50% of the tax rate on payroll.

– In 2027, companies will pay 40% of the tax rate on gross revenue and 75% of the tax rate on payroll.

– From 2028 onwards, companies will resume paying the tax rate on payroll in full, without paying it on gross revenue.

In the final report that was approved by the Senate, the rapporteur reduced the number of workers that companies will have to commit to keeping in order to benefit from the tax rate on gross revenue, instead of the payroll tax.

Instead of committing to maintain the same number of employees or increase the number of employees, companies will be required to maintain at least 75% of their employees. This means that a reduction of up to 25% of the workforce will not mean that these companies will lose their right to tax relief.

In the first version of the report, Jaques had determined that the percentage would be 100%. Later, he reduced it to 90%, but still faced resistance from senators.

In the case of municipalities, the text also establishes a “ladder”. This year, the 8% social security tax rate approved last year by Congress is maintained. In 2025, this tax will be 12%. In 2026, it will be 16%. In 2027, finally, it will return to 20%.

Spending review

The bill approved by the Senate also provides for stricter rules for joining and updating records for the Continuous Benefit Payment (BPC) and the unemployment insurance, an aid paid to artisanal fishermen during the period in which they are prohibited from fishing. Both programs are the target of the federal government’s scrutiny to reduce the 2025 budget by R$25.9 billion.

The Senate rapporteur also tightened the rules for reviewing social benefits by the National Institute of Social Security (INSS), allowing for a precautionary freeze on funds in the event of fraud. The text establishes that, after identifying signs of irregularities in the granting of benefits administered by the INSS, the amount may be frozen by an act of the Executive Branch if the beneficiary is not notified within 30 days of notification by the agency.