Padilha Demands Permanent Funding Sources from the Senate to Offset Payroll Tax Relief

247 - The Chief Minister of the Institutional Relations Secretariat, Alexandre Padilha, urged the Senate on Monday (17) to adopt "permanent" measures to compensate for the loss of revenue due to the maintenance of payroll tax relief, after the Upper House rejected a provisional measure proposed by President Lula's government.

"The proposals presented by the Senate can be part of the basket, but there needs to be a permanent source. New proposals that make up the basket (of measures to offset the tax relief) may emerge, but there needs to be something that will be permanent and last for the necessary time of gradual re-taxation," Padilha said after a meeting with Lula, as quoted by the Estadão Conteúdo agency.

According to the minister, it is not enough for the Senate to propose funding sources that only meet this year's needs. "The government reaffirmed, discussed this with the judiciary, that there can only be a reduction in social security contributions if a permanent source is presented. It's no use having a funding source for just this year," he added.

UNDERSTAND - The Legislature approved the extension of the tax relief until 2027. President Lula vetoed the proposal, but the presidential veto was overturned by the National Congress in December 2023. Given the situation—and the promise to pursue fiscal balance—Haddad's team drafted a provisional measure that restricted the use of tax credits by companies and could generate revenue of 29.2 billion reais this year, more than enough to offset the cost of payroll tax relief. The measure was poorly received by lawmakers and businesspeople and was returned by Pacheco.

In May, Minister Cristiano Zanin of the STF suspended an injunction that blocked the benefit for lack of compensation. The decision kept the tax relief in effect but granted a period to find a financial offset for the benefit.

Last week, Senate leadership formulated a list of measures to offset the government's 17 billion reais revenue loss from payroll tax relief for municipalities and economic sectors. Finance Minister Fernando Haddad said he would review the proposed measures.

Among the selected measures are the Tax Regularization Program (PRT), under consideration in the House; resources from judicial deposits forgotten in banks for more than five years; a program to encourage the payment of fines owed to regulatory agencies; the updating of assets; and the repatriation of resources from abroad.

The list also includes using both the revenues from taxing international purchases of up to US$50 and the revenues provided by provisional measure (MP) 1202, which limited the compensation of credits resulting from judicial decisions, both already approved by the National Congress. (With information from agencies).