Rodrigo Pacheco, president of the Brazilian Senate, has promised to meet with congressional leaders in the “first days of January” to discuss a provisional decree issued by the government in the final moments of last year to limit payroll tax exemptions for 17 sectors of the economy. His office tells The Brazilian Report that the date for such a meeting has not yet been set.
In mid-December, an overwhelming majority of both chambers of Congress voted to override a presidential veto preventing the extension of these tax breaks beyond last year, granting them until 2027.
On December 29, the government of Luiz Inácio Lula da Silva issued a provisional decree limiting the tax breaks in an effort to mitigate the loss of revenue imposed by Congress. That same day, Mr. Pacheco called the federal government’s decision “strange.”
Once both a “technical analysis” and a “political reaction” are considered, Mr. Pacheco said, Congress will decide whether to repeal the provisional decree.
The payroll tax exemption provision allowed companies in selected sectors — including construction, garment manufacturing, and IT — to pay only 1 to 4.5 percent of their gross revenues in payroll taxes, instead of the standard rate of 20 percent of all salaries paid in a month. Globo, Brazil’s leading television network, has fiercely defended the benefit in its reporting; it and other broadcasters stand to benefit from the break’s extension.
The provision was first enacted in 2011, during the Dilma Rousseff administration, ostensibly to benefit the sectors that create the most jobs in Brazil. However, a study published last year by the Institute of Applied Economic Research (Ipea) found that these sectors are not the ones that employ the most, and that many of them have cut formal jobs since 2011.
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