07/18/2024 – 11:12
At the height of the heated debate over whether or not to maintain the payroll tax exemption for the 17 sectors of the economy that claim to be the largest employers in the country, the chief economist of the Federation of Industries of the State of São Paulo (Fiesp), Igor Rocha, has emerged as a dissenting voice against the thesis that the benefit would not have worked.
According to him, if the effectiveness of the benefit is to be discussed, it is necessary to put the “counterfactual” up for debate – a situation or event that did not happen, but could have happened. Only then, in the assessment of the FIESP economist, could a conclusion be reached about where the industry – which has been declining for more than a decade – would be if it did not benefit from the tax exemption.
“I do not agree that the tax relief did not work. The counterfactual has to be presented. Wouldn’t the industry – which is declining – be worse off if it weren’t for the tax relief?”, asks Rocha.
Echoing the discourse of the top brass at FIESP, Rocha reiterates that what the industry is demanding is an equal tax burden for all sectors. The economist’s assessment is that the tax relief only exists – and is necessary – because of the distortion of the Brazilian tax system, which allows some segments of the economy to pay less taxes than others.
“The tax exemption exists because of the distortion in the tax chain of the productive sector. It makes sense, yes, to discuss the factor that generates this distortion, the cause of the disease”, points out the head of the Economic Department of Fiesp.
For Rocha, authorities need to listen to and discuss with the productive sector what went right and what went wrong with the tax relief.
In a simple analogy, he cites the figure of two friends who go down to the coast of São Paulo, with one paying a toll of R$35 and the other paying only R$1. On the beach, as compensation, the one who paid more for the toll gets a ticket to drink coconut water for free, and the guy who paid only R$1 for the toll tries to take the coconut water from his friend. This, according to the economist, is what they are trying to do with the industry, in the wake of the proposal to increase the payroll tax.
According to the Federal Revenue Service, maintaining the tax exemption for these 17 sectors will represent, for the government, a tax waiver of R$12 billion in 2024, R$12 billion in 2025, R$13 billion in 2026 and R$13 billion in 2027.
Tax reform
Igor Rocha is concerned about the current state of the tax reform, which is currently in the regulatory approval phase. According to him, the concern stems from the fact that the standard rate of Value Added Tax (VAT), according to the Ministry of Finance, could be 21% – in other words, in line with the Organization for Economic Cooperation and Development (OECD): a group of countries that are essentially made up of advanced economies.
“But we will have a rate of 26.5% because sectors with great lobbying power are pushing to maintain the benefits they already have. VAT is a good model, and the reform is good too, but it could be better,” he said when questioning how a sector that is at the cutting edge of the production process, which does not pay taxes, could want tax credits.
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