Brazil lowers payroll taxes in 25 sectors


Brazil has lowered payroll taxes on 25 industry sectors in order to help stimulate the economy according to an announcement by Minister of Finance Guido Mantega. The official statement as published on the president’s website is as follows:

“As a further measure to reduce the cost of production without removing workers’ rights, the government announced on Thursday (13) the reduction of payroll taxes of over 25 sectors of the Brazilian economy. The new tax relief will take effect from January 2013, according to announcement by Finance Minister Guido Mantega.

In a press conference, the minister explained that the measure will encourage the reduction of the cost of labor and make companies more competitive in this time of international crisis. “Out there are decreasing wages and benefits for workers. Here, none of that happens. We are taking the employer contribution to preserve wages, “he said, adding that this would also mean an increase in the formalization of workers.

Among the list of new sectors, are breads and pasta, medicines, rail equipment, manufacturing tools, beyond the areas of air, sea and road.

With the measure, is eliminated employer pension contributions of 20% on the payroll. The collection will be replaced by the 1% to 2% of revenue. The reduction will not affect Social Security, according to the Ministry of Finance. This is because the Union will compensate any loss of revenue pension funds with the Treasury. Moreover, part of the relief will be offset with the additional 1% of COFINS on Imports.

The Minister Guido Mantega said the tax breaks, which is the estimated loss of revenue, with the exemption of payroll of the new sectors will be $ 6.12 million in 2013. The sum of the 40 sectors that benefit from tax exemption increases to $ 12.83 billion, which corresponds to 0.26% of GDP in 2013.

Mantega also pointed out that the exemption will be approximately $ 60 billion over the next four years. According to him, the lower tax burden also contributes to lower inflation, since the sectors have pledged to pass on to prices this cost reduction. “Reviewing the prices, [companies] will compete with imported products with lower prices,” he said.

He explained that if all sectors considered already benefited from the exemption, companies will no longer pay $ 21.57 billion for INSS. With tax revenues, spending will be reduced to U.S. $ 8.74 billion.

By lowering taxes on workers’ wages, the government reduces the cost of production, stimulate job creation and consumption in the country and improves the competitiveness of Brazilian companies.”

A full list of the sectors affected can be found in Portuguese here.

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