The value of the tax exemption in 2024 would be R$9 billion and would apply to municipalities with up to 156.2 thousand inhabitants; The measure harms re-election candidates
President Luiz Inácio Lula da Silva (PT) has decided to eliminate the reduction of the social security rate from 20% to 8% on the salaries of public employees for municipalities up to 156,216 inhabitants. The Chief Executive will issue a MP (interim provision) on the topic in December 2023. The text is at the Civil House for publication. In practice it will revoke the initiative approved by Congress.
Since it has the force of law, Parliament comes into force immediately. In the short term, the effects will only be felt starting from January 2024, the year in which elections will be held in the cities. The decision could harm anyone running for re-election.
The change approved by the Minister of Finance, Fernando Haddad, through this MP, will focus on the private sector. There will be a reduction of the employer’s share. In this way, the rate will be between 10% and 15% (currently 20%) on a maximum of 1 minimum wage and will benefit companies that are part of one of the 42 economic activities covered by the MP which will be published.
Haddad plans to discuss the benefits for the private sector and municipalities separately. OR Poder360 found that the Treasury plans to talk to municipalities for a “alternative solution”.
The information relating to the repeal of the law for the purposes of the provisional measure was confirmed at Poder360 by the Ministry of Finance. Here is the note: “The Revenue Agency makes it clear that the MP will revoke the law, underlining that the minister has stressed that the issue relating to municipalities will be dealt with separately.”
Impact
These resignations alone would have an impact on the Union’s accounts of R$9 billion per year. The measure taken by Lula contradicts a statement made on September 27, when he said that mayors should use their mandate to obtain federal resources.
On the occasion, the PT deputy also stated that his government’s relationship with the mayors is the best that has ever existed in the history of the country. The measure could hinder the president’s and PT’s plans to elect more mayors in 2024.
In addition to the benefit for small and medium-sized municipalities, the law also renews the payroll tax exemption for 17 sectors of the economy until 2027. The exemption for the private sector would cost R$9.4 billion into public coffers in 2024.
The exemption allows companies in the beneficiary sectors to pay rates of between 1% and 4.5% on gross revenues, instead of 20% on payroll. In force since 2012, the measure concerns sectors such as footwear, call centercivil construction, communications, clothing and apparel, among others.
The sum of the impact of the exemption for the public and private sectors would reach at least the amount R$ 18.4 billion in the next year. Read the infographic below:
Planalto clashes with Congress
The payroll tax exemption for businesses and cities had been approved by Congress in 2023. It would be valid until 2027. Lula vetoed the measure.
On December 14, the National Congress overturned the veto by a wide margin. In the Chamber the votes against Planalto were 378 and only 78 in favour. In the Senate 60 votes to overturn the veto and only 13 for Lula.
Haddad’s decision to issue a deputy to overturn the legislative vote occurred this Thursday (December 28, 2023), when the president of Congress, Rodrigo Pacheco (PSD-MG), promulgated the law with the cancellation of Lula’s veto.
With the Lula government’s decision to repeal the law, companies and municipalities will have an immediate expense.
Haddad seeks Congress
Haddad spoke with the presidents of the House, Arthur Lira (PP-AL), and the Senate, Rodrigo Pacheco, before announcing the provisional measure. OR Poder360 found that the two leaders told the minister that it would be unwise to institute a rule to immediately impose a change in the payroll liens system.
OR Poder360 Furthermore, the MPs’ assessment is that Congress is unlikely to approve a new system that will change everything in January.
By preserving the INSS collection up to 1 minimum wage, the initiative would help the call centerone of those who would be most affected.
Criticisms of the exemption
In the morning, in justifying the parliamentarian, Haddad said yes “very little sought after by the 17 sectors” to discuss the exemption and said that the expected effects, such as job retention, had not materialised. “Employment in these 17 sectors has declined. This measure was adopted in 2011 as temporary. […] Every time you favor a sector that does not bring social benefits, you damage the entire society.”he said in an interview with reporters.
Haddad was asked questions about the overall value of revenue expected for next year, but the minister simply said that the measures “they only replace losses” with tax exemption.
The intention is to increase revenue and offset expenses. The government needs at least R$168.5 billion in additional revenue to reach the goal of zeroing the primary deficit in 2024.
With the relief, however, the budget gap could reach R$187.5 billion.
More information on payroll tax relief:
2023-12-28 22:58:51
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