AGU appeals to the STF to overturn tax exemptions for sectors and municipalities

The Federal Attorney General’s Office (AGU) appealed this Wednesday (24) to the Federal Supreme Court (STF) to overturn the exemption from payroll taxes in 17 sectors of the economy and certain municipalities. The estimated loss of revenue is R$10 billion annually.

In AGU’s understanding, the exemption was extended until 2027 by Congress without establishing the financial impact of the tax exemption. The petition was signed by President Luiz Inácio Lula da Silva and the Attorney General of the Union (AGU), Jorge Messias.

“The government has fiscal responsibility and needs to take this discussion, at this moment, to the Federal Supreme Court. Without the declaration of unconstitutionality of these devices, we will put the fiscal accounts at risk”, declared Messias.

The action also challenges the decision of the president of the Senate, Rodrigo Pacheco (PSD-MG), which invalidated the section of Provisional Measure (MP) 1.202/2023. The MP overturned social security exemptions for small and medium-sized municipalities.

Issued at the end of last year by the federal government, the measure reestablished the rate of contributions to the National Insurance Institute (INSS) from 8% to 20% by municipalities with up to 156 thousand inhabitants.

The payroll tax exemption for 17 sectors and municipalities with up to 156 thousand inhabitants was approved by Congress, however, the bill was vetoed by President Lula. Then Congress overturned the veto.

Ministry of Finance

In an interview earlier this afternoon, the Minister of Finance, Fernando Haddad, said that any tax relief for a sector must be linked to some compensation measure to maintain revenue. Both the Fiscal Responsibility Law and the Social Security reform establish this obligation.

“We are going to open a discussion about what is possible, not about what conflicts with the Social Security reform, which has a fundamental clause which is the maintenance of Social Security revenues to honor the benefits that the State has to pay”, said the minister . According to him, the Social Security reform prohibits the “corrosion of the quota collection base [contribuição] employer”.

Haddad made the statement before meeting with President Lula at Palácio do Planalto, to define the final details of the first complementary bill that regulates tax reform.

Regarding the reduction from 20% to 8% of the contribution to the INSS, by small municipalities, Haddad said that the benefit approved by Congress at the end of last year occurred “on the margins” of negotiations with the National Confederation of Municipalities (CMN) and the National Front of Mayors.

Tax compensations

In the action filed by the AGU, the government also asks for the constitutionality of the section of MP 1,202, published at the end of December, which establishes limits for the tax compensation of credits originating from final and unappealable court decisions.

According to Haddad, the government wants the Supreme Court to certify the legality of the limits for compensation to contest the granting of injunctions against the ceiling for tax reimbursement. “The declaration of constitutionality of compensation is important to speed up trials in the first instance and provide more security for the Brazilian State, which, in fact, we can count on [em receitas]”, explained the minister.

For this year, the government intends to raise R$24 billion by limiting tax compensation. The mechanism is essential for the economic team to meet the goal of reinforcing cash by R$168 billion this year so that public accounts close the year within the target of zero primary deficit, with a tolerance margin of R$28.5 billion for up or down.