Economic officials want veto on extension of payroll-tax cuts
The bill for conversion of provisional measure (MP) 936 into law, passed by Congress, is awaiting President Jair Bolsonaro's signing, something expected for the next few days. The MP relaxes some labor rules during the pandemic. Economic officials proposed the presidential veto to article 33, which postponed the end of payroll-tax cuts for several sectors, set for December 31 of this year, to the end of 2021. Their main argument is that the extension of the benefit goes against constitutional amendment 106, recently passed.
The grant of tax benefit that results in loss of revenue must be accompanied by a compensation measure, with increase of another tax, according to article 14 of the Fiscal Responsibility Law (LRF). Economic officials argue that amendment 106/2020 established that, for creation of tax benefit, article 14 of the LRF doesn't need to be followed as long as the effect of the measure is restricted to the duration of calamity state, which in the current case is until December 31 of this year. Since the object of article 33 is to extend the benefit to 2021, the measure would be unconstitutional for economic officials.
Yet there is one complicating factor in this view. In the same month of May in which it passed amendment 106, Congress also passed complementary law 173, altering some LRF rules. Article 3rd of the new law states that during the state of public calamity article 14 of the LRF is not in force. And, unlike amendment 106, it doesn't set a duration for the effects of the revenue relinquishment.
Article 7th of the same law also suspends the conditions and prohibitions of article 14 of the LRF, as long as the incentive or benefit is used to fight the public calamity, without establishing a period for effectiveness. The issue now is to know if a complementary law can "relax" a constitutional provision, one expert consulted by Valor says.
Payroll-tax cuts were implemented by former President Dilma Rousseff in 2011, with the goal of stimulating the creation of formal jobs. Many sectors were benefited by the measure, replacing the contribution to social security charged over payrolls with a contribution calculated according to the company's revenue. Ms. Rousseff even made payroll-tax cuts permanent.
In 2015, however, she changed her mind. As part of a comprehensive program to rebalance government accounts, the ex-president began reducing the number of sectors entitled to the benefit and increased the contribution rate over...
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