Payroll tax breaks will get another year in Brazil

The Brazilian government’s whip in Congress, Senator Randolfe Rodrigues, said the Luiz Inácio Lula da Silva administration reached an agreement to grant 17 economic sectors another year of a special benefit that reduces payroll taxes. Mr. Rodrigues made his remarks after meeting with After a Monday meeting with Finance Minister Fernando Haddad and the government’s Senate whip, Jaques Wagner.

Ending this tax break was one of Mr. Haddad’s priorities in order to increase government revenues and achieve the goal of a zero deficit in 2024. 

Introduced in 2012, the benefit has been extended by successive governments for more than a decade. It consists of replacing a more expensive contribution of 20 percent of the payroll costs of companies in these selected sectors with a cheaper tax bill of between 1 and 4.5 percent of these organizations’ gross revenues. 

The largest employers in sectors such as cargo transportation, construction, and communications, among others, will benefit from this new agreement. 

Last year, President Luiz Inácio Lula da Silva vetoed a bill that would have extended this benefit until 2027 because it would have meant giving up on more than BRL 25 billion in taxes, not included in this year’s budget. 

However, Congress overrode Lula’s veto in December. One day later, the government issued a provisional decree proposing a gradual phase-out of the tax benefits and limiting the resulting tax credits. 

In Brazil, provisional decrees issued by the president take effect immediately, but must be approved by Congress within four months to remain valid. This impasse is one of the main issues blocking the government’s agenda in Congress.

To comply with the agreement, the government must send a bill to Congress proposing to extend the benefit until the end of this year, in addition to removing the issue from last year’s provisional decree. Party leaders in the Senate said today that they are waiting for the bill to be sent in order to resume dialogue with the government.

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