Finance and Congress reach agreement on exemption for 17 sectors

The Minister of Finance, Fernando Haddadand the presidents of the Chamber and Senate, Arthur Lira (PP-AL) and Rodrigo Pacheco (PSD-MG), reached an agreement this Thursday (May 9, 2024) on how the INSS contribution payment system will be carried out by companies in 17 sectors of the economy. The most important news is that the system will remain unchanged until December 31, 2024. In other words, payment to the INSS will be in percentages of up to 4.5% of the companies’ gross revenue.

From 2025 and until 2028, there will be a gradual reburdening and payment to companies will be in percentages of the total payroll. According to the announced schedule, these will be the rates:

• 2024 – the current system was maintained, with payroll tax relief;
• 2025 – 5% of total salaries;
• 2026 – 10% of total salaries;
• 2027 – 15% of total salaries;
• 2028 – end of exemption and return of the full rate of 20% of total salaries.

Another relevant point of the argument is that the 13th sheet will be exempt until 2028according to Haddad. “The sectors presented a counter-proposal, asking that the 13th sheet only be re-encumbered at the end of the process. I mentioned this to you. I came to inform President Pacheco that we will accept the counter-proposal from the sectors […] So, the 13th sheet will be exempt until 2028.”he declared.

With this agreement between the Executive and Legislative Powers, the action proposed by Palácio do Planalto to the Federal Supreme Court regarding the exemption is suspended. The STF began judging the request from the government of Luiz Inácio Lula da Silva (PT) and there are already 5 votes (out of a possible 11) for the exemption to be ended immediately. In this context, an immediate negotiation began between the economic team and Congress, which ended up resulting in this Thursday’s announcement.

According to Haddad, the model was built with representatives of the economic sectors. “The option converges the interests of the Union, the productive sector and Congress”stated the minister, after meeting with the president of the Senate, Rodrigo Pacheco (PSD-MG), the leader of the Government in Congress, senator Randolfe Rodrigues (no party-AP), and the Minister of Institutional Relations, Alexandre Padilha.

The proposal endorsed by the private sector does not extend the exemption to municipalities with up to 156.2 thousand inhabitants, contrary to what Congress approved in October 2023.

HOW IT IS

Payroll relief allows benefiting sectors to pay rates of 1% to 4.5% on gross revenue instead of 20% on payroll. There is a financial advantage for companies, which justify that the measure helps to ensure employability.

The mechanism has worked this way since 2012, when the policy was instituted under the Presidency of Dilma Rousseff (PT). It was extended until 2027 upon approval by Congress.

For small and medium-sized municipalities, the measure came into effect from 2024 and results in a reduced tax rate from 20% to 8% in relation to social security contributions.

AGREEMENT SUSPENDS INJUNCTION

Haddad minimized the government’s judicialization of the case. “It was a mediation like what happens in the civilized world […] It’s a question of institutional maturity”he said.

Pacheco reinforced that the Treasury will take the agreement with the 17 sectors to the STF so that the effects of the injunction granted by Supreme Court Minister Cristiano Zanin, which in practice requires companies to collect payroll taxes and pass them on to the Union.

The president of the Senate tried to reassure the 17 sectors by saying “nothing changes” because of the agreement. “For this year, and consequently for this month of May, nothing changes. [O tributo] is collected like last month, on billing”he said.

Here are the 17 sectors that had been reburdened with Zanin’s decision:

COUNTIES

Haddad stated that he will meet with representatives of the municipalities on Monday (May 13) to discuss the situation in the segment. The head of the Treasury said that he would have a meeting with the sector this week, but that the meeting did not take place due to the floods in Rio Grande do Sul.

The minister also declared that the format will be different from the re-encumbrance on the 17 sectors. According to him, “one of the proposals put forward by the municipalities has no fiscal impact”.

O Power360 He contacted the CNM (National Confederation of Municipalities) to find out if there was a position on the proposal decided on this Thursday and the situation in the sector. In response, the department informed that it is awaiting a scheduled meeting with the Treasury to discuss the issue and that a proposal has already been presented by the entity.

UNDERSTAND THE IMPACT

Without going into details, Haddad said that the fiscal impact of the exemption for the 17 sectors and municipalities is “somewhere around R$22 billion”. When asked by journalists about compensatory measures, he stated that “it could be more than one”.

In the 1st quarter, the National Treasury stopped collecting R$ 4.2 billion with payroll tax relief. Therefore, the potential impact is R$ 11.6 billion from April to December 2024.

As federal government revenue is associated with the number of company employees, the amount may be lower if there is a wave of layoffs. The request made to the STF was from the AGU (Advocacia Geral da União), but led by Fernando Haddad.

He argues that the policy that was created to create jobs did not have the expected results. Furthermore, he said that, since the enactment of the Social Security reform, tax waivers have become unconstitutional. Sectors criticize the reimbursement, mainly due to the sudden return that frustrates companies’ financial planning.

COMINGS AND GOINGS

The Minister of Finance I had said in December 2023 that the issue was unconstitutional and that the government would take legal action. Read the chronological order of the facts to understand the exemption impasse:

• 13.jun.2023 – Senate Economic Affairs Committee approved the extension of the benefit to the 17 sectors. Haddad he said “not understanding the rush” in voting on the topic;
• Oct 25, 2023 – Congress approved the postponement of the tax waiver until 2027;
• Nov 23, 2023 – president Luiz Inácio Lula da Silva (PT) veto measure;
• Nov 24, 2023 – Haddad it says which would present a “solution” for payroll tax relief after December 12, 2023;
• 14.dec.2023 – Congress Take down Lula’s veto and exemption will be maintained until 2027;
• December 28, 2023 – Haddad proposes a gradual repayment of the payroll via MP (provisional measure) 1,202 of 2023with effect from April 1, 2024;
• 27.Feb.2024 – Squid withdraw exemption from the provisional measure sheet andsend the PL (bill) 493 of 2024 with gradual re-encumbrance;
• 9.Feb.2024 – Chamber of Deputies approves constitutional urgency regime for re-encumbrance projects;
• April 10, 2024 – Without an agreement with Congress, the reimbursement bill had an urgency regime withdrawn.

EXEMPTION HISTORY

More than half (52.4%) of the waiver value from 2012 to 2023 was during the Dilma government. The former president granted the benefit to 56 sectors during her term, or 39 more than currently. The government Michel Temer (MDB)reduced the number of sectors benefiting from 56 to 17 since 2019. Read below what they were under Dilma’s government: