In april, the Ministry of the Brazilian Tax Authorities revealed a note that explains the Law Project 863/2015, which modifies the payroll exemptions adopted since 2011, and from which Auxadi overtook the first information in its newsletter of March.
According to the government, the fiscal withdrawal from the program added up to 21.600 millions of Brazilian real (0.39% GDP) and in 2015 it is estimated that the public and institutional income will decrease 25.200 millions of Brazilian real. With the new law project, the government pretends to reduce this fiscal withdrawal in about 12.000 millions of Br. Real.
► Current situation
The payroll exemption (“Desoneração da Folha de Pagamento” in Portuguese) was issued as a provisional measure in 2011, but later it was turned into a law. This measure decreased the value of the employer contribution related to payrolls from some sectors. It was introduced inside anti-cyclical fiscal policy created to improve competitiveness, to stimulate exports (because the income coming from exports was not included in the base of the tax calculation) and to encourage employment.
The measure was replacing the “Employer’s payroll Contribution” by a contribution (from 1% or 2%) based on the enterprise gross income and firms’ tax deductions, the “Employer’s Gross Income Contribution”
► Impacts in the Brazilian tax system
According to the note, the measure set up some distortions with an impact in the short, medium and long term in the Brazilian tax system and especially in the pension financing system. On the other hand, it also increased the regression of the tax system; created a waterfall effect over the tax situation by not generating tax credits; distorted the distribution by beneficiating some enterprises with intensive labor force and by having a lower effect over being more intensive in the capital range, thereafter reducing the investment; increased the administrative costs of the government and the bureaucracy by having to manage two different systems.
► Law Project 863/2015
With the law project 863/2015, The government seeks for restricting and improving payroll policy exemptions. As a principal measure, a tax increase from 1% up to 2.5% and from 2% up to 4.5%; something that will make many companies, that today are subject to the tax exemption, get back to the traditional tax payment system . Tax Authorities clarify that many companies will continue to benefit from that exemption, like in the case of the industrial sector, in which the 40% of the businesses will keep being beneficiated by the program, even with the interest rate increase.