Brazil risks losing $1.7 billion with payroll tax bill changes

By Alonso Soto

BRASILIA (Reuters) – The Brazilian government’s proposal to roll back tax breaks as part of its austerity drive is being diluted in Congress and the country could lose 5 billion reais ($1.7 billion) in tax revenue this year, the lawmaker drafting the changes said on Thursday.

Leonardo Picciani, leader of the PMDB party in the lower house of Congress, told Reuters he is proposing the rollback to start gradually next year. The government wanted the measure to take effect this year to raise 5 billion reais in 2015 and 13 billion reais in 2016.

In February, President Dilma Rousseff more than doubled the social security tax rate on corporate gross revenue, effectively reducing payroll tax breaks for 56 sectors that were costing the government about 25 billion reais a year in lost revenue.

The temporary decree that needed Congressional approval was thrown out by the PMDB leader of the Senate, Renan Calheiros, forcing the government to present a full-fledged bill instead.

Picciani said the hike in corporate taxes should only start next year and the rate would be gradually lifted through 2017 if his amendments are adopted.

“The government has lost that revenue this year, it should focus on next year,” said Picciani, whose draft proposal is expected to be voted on Wednesday. “Making the changes in 2016 gives companies more predictability and it is fairer for them.”

Picciani said the tax hikes will be equal for all sectors, excluding industries that prove they will be heavily impacted by the measure at a time that Brazil is slipping into recession.

Rousseff and her new Finance Minister Joaquim Levy are struggling to push through two other unpopular bills that limit pension and unemployment benefits and have met resistance from within the government 19-party coalition.

Many allied lawmakers, including those of Rousseff’s own Workers Party, believe the austerity will only worsen the recession expected this year.

PMDB lawmakers have supported the two bills, but believe the government erred in reducing tax incentives so abruptly.

“The bill will not remain as the government wants it,” Romero Juca, an influential PMDB senator told Reuters. “It is crazy. This bill breaks contracts and hurts expectations.”

The finance ministry declined to comment on the matter.

For Raul Velloso, a Brasilia-based economic consultant, the government will have to further limit expenditures to make up for the loss revenue.

“The government is too weak to get everything it wants in Congress,” he added.

(Reporting by Alonso Soto; Editing by Lisa Shumaker)

Like this article? Take a second to support us on Patreon!