Source: Jornal do Comércio - RS, 06/07/2009

The Ministry of Finance is working behind the scenes to disconnect the companies' payroll tax exemption from the tax reform debate, if it is not possible to approve it this year. The studies consider the possibility of incorporating what was defined in the project that is in the National Congress, such as the gradual reduction of the social security contribution of companies.

The decision, however, does not depend only on a political agreement, but especially on the recovery of economic activity. "There is a fear that, when we announce the proposal for the release of payroll, the reading is made that the government has given up on reform," said an adviser to the economic team.

The tax reform proposal was sent to the National Congress in February last year, but the debate has not progressed. “We are aware of the difficulty of this negotiation. Everyone wants reform, but each state has an opinion ”, said the advisor. "It would be important to approve the reform because it improves the quality of the collection."

This is the official speech, but, behind the scenes, the Minister of Finance, Guido Mantega, would like to announce, within two to three months, the reduction in labor costs for companies. While there is no definition, studies based on the proposal under discussion prevail: gradual reduction of the employer's social security contribution rate from 20% to 14%.

An important obstacle to the progress of the proposal is the uncertainties regarding the behavior of the economy. Although the Minister of Finance believes in growth of 4,5% in 2010, it is necessary to wait to see if the estimate is confirmed. Without the recovery of the economy, there is limited guarantee that the change will not cause damage to social security accounts.

Even so, the technicians argue that the exemption from payroll includes the government's commitment to keep the Social Security collection stable - in May, it was R $ 14 billion. For the project, the National Treasury would handle the eventual drop in tax collection, not least because Social Security does not want to be held responsible for the increase in the public deficit.

Calculations show that the reduction in the employer's rate from the current 20% to 14% would cause a loss of revenue of R $ 22,8 billion - each percentage point corresponds to the tax waiver of R $ 3,8 billion. In this sense, the proposal faces resistance in the Treasury and Social Security. "It is not the timing to discuss this in a year of crisis", commented a technician. For Mantega's team, the reduction in payroll is a fundamental step to stimulate the economy. "The question is to make a sustainable tax reform", said an advisor.

Social security technicians were surprised by the possibility of anticipating the payroll tax relief. At least for the time being, they have not been called to new debates on the subject. The assessment is that, in a year of strong fall in tax collection, it is difficult to assume the commitment to give up R $ 3,8 billion. This would mean a sharp increase in the Social Security deficit.

The information technology sector may be one of the first to benefit from the tax exemption because it is an initiative that does not depend on tax reform. The proposed decree is ready, but has not yet been signed by all the ministries involved. The idea is to exempt companies in the sector from contributions to the S System (Sesc, Senai and Senac), in addition to reducing the INSS rate.