The government’s thesis to extend the exemption contradicts TCU, and the court demands explanations

The argument used by the Jair Bolsonaro (PL) government to extend the tax exemption for 17 sectors without adopting tax measures to compensate for the loss of revenue of R$ 9.1 billion in 2022 contradicts a decision already issued by the TCU (Tribunal de Contas da Unity).

The audit court now wants explanations from the government, which has until January 31 to demonstrate to the court that it has adopted all the measures required by the LRF (Fiscal Responsibility Law).

The extension of the payroll exemption was sanctioned by Bolsonaro in the last hours of December 31, 2021.

As the waiver of revenue is not provided for in the 2022 Budget, the government wants to support the thesis that the sanction still in 2021 means an extension of an existing policy, dispensing with new compensation.

The enthusiastic wing of the argument states that the LRF text mentions the requirement of measures only in cases of granting or expanding tax benefits, without mentioning the word extension.

However, TCU has already clarified this point in a 2010 judgment.

In the ruling, the court ordered the then Ministry of Finance —today the Economy— to “observe, when extending revenue waivers, the conditions established in article 14 of the Fiscal Responsibility Law”.

The conditions are the adoption of a compensation measure or the provision of waivers in the Annual Budget Law. In the case of payroll exemption, none of the alternatives were adopted.

The General Secretariat of the Presidency of the Republic even released an official statement on Saturday (1) stating that the compensation would not be necessary because “it is an extension of an already existing tax benefit” and because the measure “was considered in the Revenue Estimate Report of the 2022 Budget Law Project”.

The agency also said that the measure was given “in terms of the guidance issued by the Court of Auditors of the Union”.

as showed the leaf, not only does the TCU demand compensation in cases of extension, but also the 2022 Budget revenue rapporteur, senator Oriovisto Guimarães (Podemos-PR), said that the government’s note “is wrong”.

According to him, the waiver with the exemption was not included in the Budget revenue report because Bolsonaro did not enact the law in time for its impact to be incorporated. “We can’t estimate revenue based on ‘I think,'” he said.

TCU’s Semag (Governmental Macro-Assessment Secretariat) had already asked the Ministry of Economy, in early December, to prove compliance with the LRF in all waivers instituted in 2021.

The request was made in a process to monitor the so-called tax expenditures.

According to court sources heard by the leaf, as the exemption was sanctioned on December 31, the new law will be met by the requirement. The government will have until January 31 to prove compliance with the requirements of the LRF.

The Ministry of Economy even recommended the maintenance of the higher IOF (Tax on Financial Operations) surcharge on credit operations and the higher CSLL (Social Contribution on Net Income) on banks.

The portfolio, however, was ignored by the Planalto Palace, and both charges expired at the end of 2021.

Other benefits approved by the president at the turn of the year will also be subject to inspection by the TCU.

According to experts in the economic area, the extra charge of the IOF and CSLL would also serve to offset the measure that extended, until the end of 2026, the exemption from the IPI (Tax on Industrialized Products) for taxi drivers, taxi driver cooperatives and people with deficiency.

The law also extended the scope of the benefit to people with hearing impairments, who were not covered by the exemption before.

In the note released by the General Secretariat, the government used the same argument to justify the absence of compensation. “Since this is an extension of the existing tax exemption, new compensation will not be necessary,” said the agency.

However, the Chamber’s own Conof (Budget and Financial Supervision Consultancy) had already pointed out the illegality of the measure, in a newsletter signed by consultant Eugênio Greggianin on November 4, 2021.

“The methodology for calculating the waiver was not demonstrated. The waiver compensation was not indicated. Infringed provisions: art. 14, LRF (requires methodology for calculating the estimate of the waiver; and demonstration that the waiver was considered in the budget law or is accompanied by compensatory measures)”, says the text.

According to TCU sources, in addition to the ongoing follow-up, the court may open specific processes to investigate the case. The Public Ministry at the TCU also analyzes the episode and may represent the opening of a new audit.

It is certain that the topic will be the target of a specific topic in the 2021 government accounts, under the report of Minister Aroldo Cedraz.

During the government’s internal negotiations for the sanction of the payroll tax exemption, the AGU (Attorney-General of the Union) pointed out the need for a full veto of the law, or sanction accompanied by measures indicated by the Economy, according to sources heard by the report.

However, the Planalto Palace’s understanding that the extension of a resignation would dispense with the fulfillment of the requirements prevailed.

None of the laws that granted benefits was signed by Minister Paulo Guedes (Economics) or his substitute, as would be the custom in tax matters.

Without the compensation measures, the assessment in the economic area is that the president could be accused of committing a crime of responsibility, subject to impeachment. Therefore, the decision to sanction the laws without tax measures was received with surprise among technicians.

The Ministry of Economy directed the inquiries about the payroll tax exemption to the Planalto Palace. The Secretariat for Communication of the Presidency, in turn, forwarded the questions to the General Secretariat of the Presidency, which did not respond until the publication of this text.

The exemption results in tax waivers for the government because it allows companies in the benefited sectors to pay rates of 1% to 4.5% on gross revenue, instead of 20% on payroll.

The permit was created ten years ago as a way to reduce costs on hiring labor for some sectors.

Since then, the policy has gone through a process of expansion and, more recently, a reduction in its scope. Currently, 17 sectors are still benefited.

The sectors reached by the measure are footwear, call center, communication, apparel and clothing, civil construction, construction companies and infrastructure works, leather, manufacturing of vehicles and bodies, machinery and equipment, animal protein, textile, information technology , communication technology, integrated circuit design, subway-railway passenger transport, collective road transport and road freight transport.