Originally published in the May 21 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazilian Minister of Planning Bernardo Appy on May 15 said the executive branch and the Federal Revenue Department are finalizing a review of a possible change in the way payroll taxes are levied. The purpose would be to shift payroll taxation — at least partially —to gross income.
The idea is not new and was originally announced in late March by former Minister of Development Luiz Furlan. At the time, Furlan announced that only software and information technology companies would benefit from the change to payroll taxation.
Now Appy says changes would likely affect all corporate taxpayers, rather than only those with intensive labor forces, such as software, IT, telemarketing, and construction companies. At least part of the employers’ 20 percent payroll tax would be shifted to the companies’ gross income. The rate of the new tax has not been released, but Appy said the executive branch may even consider different rates according to the taxpayer’s business.
Appy also said the shift of payroll taxation to gross income is part of a broader tax reform president Luiz Inácio Lula da Silva intends to send to Congress. Originally, sources at the executive branch said a new tax reform bill would be sent to Congress by May or June. Now they say a final draft would be concluded only in the second half of 2007.
David Roberto R. Soares da Silva