Chamber opposes Revenue and plans to expand Simples, at a cost of BRL 66 billion in 2023

The Chamber of Deputies articulated during the electoral campaign the approval of a project that raises, from January 2023, the ceiling of Simples (special taxation regime). The proposal goes against the Federal Revenue, which calculates an annual loss of R$ 66 billion with the text, and adds even more pressure for the president-elect to manage next year’s Budget.

The government’s main tax expense, Simples is a regime created in 1996 for micro and small companies to pay various taxes and contributions in a unified way and with less collection. The goal was to reduce complexity and protect entrepreneurs.

The forecast is that in 2023 it will cost the National Treasury BRL 88.5 billion. The item raises the Union’s tax expenditures, which will reach a record total level of R$ 456 billion next year — despite the fact that Minister Paulo Guedes (Economy) took over the government advocating cuts.

The opinion of the complementary bill must be presented by the rapporteur, Deputy Darci de Matos (PSD-SC), at an event in the Chamber scheduled for November 8. The expectation is that the urgency is voted on in the same week, so that the proposal is returned to the Senate by the end of the month and sanctioned later this year. Thus, it would enter into force on January 1, 2023.

Darci de Matos said that, before the first round, he agreed with the mayor, Arthur Lira (PP-AL), and with Guedes to run the project after the elections. Both must participate in the reading of the opinion.

The deputy says that, in principle, he will maintain the text approved by the CFT (Finance and Taxation Commission), reported by colleague Marco Bertaiolli (PSD-SP). However, he does not rule out including some suggestion.

The original project, authored by Senator Jayme Campos (União-MT), increased the ceiling for the gross revenue of the MEI (individual microentrepreneur) from R$ 81 thousand to R$ 130 thousand per year. At the Finance and Taxation Commission, Bertaiolli increased the amount to R$ 144,913.41, applying a readjustment based on the IPCA (official inflation index) accumulated over 16 years (when the National Statute of Microenterprises and Small Businesses was created ).

In addition to increasing the annual gross revenue value for MEI, the text also expands other ranges. For micro-enterprises, the limit goes from R$ 360 thousand to R$ 869.5 thousand per year. In the case of small companies, it goes from R$ 4.8 million to R$ 8.7 million. The project also determines that all bands are updated annually by the IPCA.

The higher the Simples billing limit, the greater the number of companies that pay taxes under the special regime. This results in a lower tax burden for the taxpayer and lower revenue for the government.

The text also allows the MEI to hire up to two employees — today it can only have one. “We have 13 million MEI in Brazil. If only 10% of them hire one more employee, we are talking about the possibility of generating more than 1 million jobs”, defends Bertaiolli.

Sought, the Revenue stated that it only manifests itself on published acts. The agency, however, has already positioned itself at different times against the expansions made in the regimes.

Fernando Mombelli, Undersecretary for Taxation and Litigation, calculated at a CFT meeting held in May that the correction would cost BRL 66 billion in 2023.

“Both the Internal Revenue Service and the Ministry of Economy […] we have always been against the automatic re-indexing of taxes and salaries”, said Mombelli at the May hearing. “A question of updating the table […] impacts the National Congress itself and the verification of where it will withdraw this resource”, he said at the time.

In 2021, the then Special Secretary of Revenue José Barroso Tostes Neto criticized the expansions made over the years in Simples and MEI and suggested that the flexibilities had to be reversed from the lower income tax collection for companies in the normal regime ( change is foreseen in the project sent by the government to Congress that year).

For Isac Falcão, president of Sindifisco Nacional (Union of Tax Auditors of the Federal Revenue), the proposal to expand Simples should be completely rejected. “It causes very important damage to the Brazilian tax structure, to the financing of public policies, to labor relations and also to Social Security”, he says.

The Revenue auditor considers that the increase in billing limits for inclusion in Simples favors income concentration. “You start treating legal entities with high economic capacity in the same way as those with low economic capacity, harming the aspect of isonomy”, he exemplifies.

In a technical note from the Revenue to which the Sheet had access, the general coordination of Taxation recommended the rejection of the project alleging unconstitutionality due to the potential aggravation of tax distortions.

For the agency, a MEI that earns BRL 10,000 per month is able to pay more than the BRL 55 in social security contributions currently required of it. Another problem is the high default rate. “The problem is not only the symbolic value of the social security contribution, but also the fact that almost half of the MEIs simply do not pay even this amount”, says the Revenue.

The note also points out that the proposal, instead of stimulating formalization, sets an incentive to close jobs, replaced by the pejotization model (when individuals create companies to mask an employment relationship with other companies, making both sides pay less taxes) and highlights the negative impact on Social Security accounts.

The rapporteurs of the text in the plenary and in the CFT disagree. “We all know, even the lay people in economics, that when you expand the base, you formalize, expand the business and, in the economic chain, unlike losses, there will be a gain in employment and revenue”, says Darci de Matos .

For Bertaiolli, micro and small companies are suffocated by the lack of updating the Simples table. “The Internal Revenue Service is very wrong when it thinks that it will cause tax waivers. Every micro-enterprise, when it sees that it is going to exceed the limit imposed today, sets up a second micro-enterprise. We have a micro-enterprise factory in Brazil for not updating the table”, says.

There is still a concern about whether the project could violate the Fiscal Responsibility Law, as it implies a waiver that would not have compensation provided for in the Budget. Juliana Damasceno, senior economist at Tendências Consultoria, argues that this waiver would need to be included in the Budget.

The big problem, he says, is measuring the net effect of this tax benefit. She recalls that companies classified under Simples will have economic incentives to operate. “They will be moving, in a way, the economy, and there may, yes, be a stimulus for the formalization of both companies and informal workers.”

Vinícius Amaral, legislative consultant on Senate budgets, believes that only the correction of the billing limit should not be legally seen as an expansion of the tax benefit. “Now, the variation of the limit that exceeds the correction by a certain index must be understood as an expansion and be subject to all constitutional and legal rules”, he says.

In the case of MEIs, for example, when updating the ceiling of BRL 81,000 – in force since 2018 after approval in 2016 – using the IPCA as a correction index until September this year, the limit would be BRL 105,000. That is, any value above that constitutes an extension of tax waiver.

In this case, the project would be required to present an estimated financial budget impact. According to Amaral, in order not to violate the Fiscal Responsibility Law, it would suffice to present compensatory measures or demonstrate that the reduction in revenue generated by the approval of the project would be considered in the Budget.

Parliamentarians would, therefore, need to re-estimate the revenue during the 2023 PLOA (Annual Budget Bill), already sent to Congress and which must undergo modification.