What is payroll tax exemption?
Payroll tax exemption is a tax measure adopted to reduce companies’ labor costs by replacing the contribution levied on employees’ payrolls with a percentage of the company’s gross revenue.
The main objective is to reduce labor costs in the exempted sectors, which generally require a significant number of employees.
Law 14.784/2023
On December 27, 2023, Law No. 14.784/2023 extended the payroll exemption for municipalities and productive sectors until 2027.
The law maintained for 17 segments the possibility of replacing the 20% payroll tax with rates of 1% to 4.5% on gross revenue. It also reduced the rate of the social security contribution on the payroll of municipalities with a population of up to 156,216 inhabitants from 20% to 8%.
There was also a reduction in the rate of social security contribution on gross revenue (CPRB) to 1% for road transport companies.
Which sectors benefited from the law?
The sectors that benefited were: animal protein, footwear, machinery and equipment, clothing and apparel, integrated circuit design, civil construction, leather, communications technology, call centers, construction companies and infrastructure works, communications, vehicle and body manufacturing, information technology, communications technology, metro-rail passenger transport, collective road transport and road freight transport.
Direct Action for Unconstitutionality (ADI) No. 7633
At the beginning of 2024, the Federal Government took the extension of the tax exemption, approved by Congress in 2023, to court. The purpose of the ADI is to question the validity of the provisions of Law No. 14.784/2023, relating to the exemption for companies and municipalities, on the grounds that there is a dissonance between this law and the Federal Constitution, since the approved law does not provide for an estimate of the financial and budgetary impact for the creation of a mandatory expense.
In an injunction issued in April 2024, the Federal Supreme Court (STF) suspended the effectiveness of the articles of Law 14.784/2023, which extended the payroll tax exemption for municipalities and productive sectors until 2027.
However, in May 2024, due to the impasse between the National Congress and the Government, with the aim of enabling inter-institutional dialogue, Justice Cristiano Zanin suspended the effects of the injunction previously granted, for a period of 60 days, releasing taxpayers from the obligation to pay contributions from May 2024 onwards. The decision was unanimously upheld by the Court in June 2024, giving Congress and the Executive Branch until July 19, 2024 to find a consensual solution to the issue.
Despite the suspension granted, the terms of the agreement between the legislature and the executive were not finalized in time, which is why a new suspension of the effects of the injunction was granted, extending the deadline to September 11, 2024 for Congress and the Federal Government to present compensatory measures for the tax waivers generated by maintaining the payroll tax exemption.
Provisional Measure No. 1,227/2024 was received as a proposal to increase federal tax collection, since, among other changes, it determined a change in the rules for crediting PIS/COFINS.
However, these provisions of the Provisional Measure were not well received by the sectors affected, in addition to the fact that its entry into force violated the nonagesimal principle, which led to the partial return of the Provisional Measure and the loss of its effects on these points.
Agreement between Congress and the Government
In order to overcome the impasse created, in May of this year, Finance Minister Fernando Haddad and Senate President Rodrigo Pacheco announced an agreement to gradually resume the calculation of the social security contribution on payroll, an agreement which is the subject of a bill.
Thus, in the negotiations between the Executive and Legislative branches, it was initially established that the benefit will be maintained until 2024, gradually being reduced until 2028, when the 17 benefited sectors will return to paying the 20% rate, like the other segments.
With regard to municipalities, the legislature and mayors’ organizations have also begun negotiations so that the rates can be gradually resumed from 2025.
Law 14.973/2024
On May 15, 2024, Senator Efraim Filho (PB) filed Bill No. 1,847/2024, which established the transition regime for the end of payroll exemption.
On September 16, 2024, President Luiz Inácio Lula da Silva (PT) sanctioned the bill approved by Congress, through Law No. 14,973/2024, which ensures the payroll exemption until the end of 2024 and determines the gradual exemption of 17 sectors of the economy and municipalities with up to 156,200 inhabitants from 2025.
The presidential sanction, however, was accompanied by four vetoes, including the article that gave people until December 31, 2027 to claim funds forgotten in financial institutions, funds that total, according to the Central Bank, R$8.5 billion.
Another notable veto was that of the article that provided for the creation of Collection and Negotiation Centers for Non-Tax Credits, which would have the power to make settlement agreements in administrative or judicial disputes, corresponding to debts registered as active debt or owned by the Union and its autarchies.
Among the compensatory measures approved with the maintenance of the payroll tax exemption, the following stand out: permission for individuals or companies to update the acquisition cost of properties declared to the IRS to market value, at lower rates; the repatriation of funds of lawful origin held abroad and not declared or incorrectly declared; the additional 1% of COFINS-Import until 31/12/2024, to be gradually reduced during the transition period; and measures to combat irregularities in social and welfare benefits.
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