Originally published in the June 15 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
The Brazilian government’s plan to shift payroll taxation to gross income has once again been postponed. Finance Minister Guido Mantega said any tax change in that area will be put off until 2008.
The plan was announced by former Minister of Development Luiz Furlan in late March and was reaffirmed by Minister of Planning Bernardo Appy in mid-May. It would reduce corporations’ payroll tax burden by shifting it, at least partially, to gross income. The move was proposed in response to taxpayers’ complaints about the Brazilian currency’s appreciation in relation to the U.S. dollar, which made Brazilian products less competitive because of the high cost of labor.
A bill of law was expected to reach Congress this month, but on June 8, Mantega announced that plans to submit the measure have been shelved. According to Mantega, shifting payroll taxation to gross income is a complex move that requires careful review by all parties involved, including the National Social Security Institute, taxpayers, and the Federal Revenue Department.
However, some observers contend that the reason for the delay is more political than technical. They say the executive branch is using the postponement as a negotiating instrument to help coax Congress into extending the 0.38 percent bank transactions tax (CPMF) until 2011. Under the current rules, the CPMF will expire on December 31, 2007.
Corporate taxpayers may not see a reduction in their overall tax burden even if the plan to shift payroll taxation to gross income becomes a reality. The executive branch’s idea is to make the shift as neutral as possible in terms of tax revenues, even though tax revenues in the first quarter of 2007 have increased 11.5 percent over the same period in 2006.
David Roberto R. Soares da Silva