Exemption from company payroll

Image: Andrea Piacquadio


Expensive but efficient policy to transfer income to the rich

At the beginning of 2024, the issue of payroll relief for companies in 17 sectors of economic activity[I] which, according to them, are the ones that generate the most employment in the country, has returned to the center of the national political debate. This is a tax system that has been in force since 2012, which ends on December 31, 2023.

Throughout this period it underwent several changes, reaching the point where it was changed in the first year of Dilma Rousseff's second government to 59 sectors. But in 2018, Michel Temer's government reduced it to the current 17 sectors, stipulating that this policy would end at the end of 2020. Since then, this benefit had been granted annually, and at the end of 2022 it was extended until December 2023.

In general, this tax relief determined the extinction of the employer's social security contribution, the extinction of the CIDE contribution (Contribution for Interventions in the Economic Domain) and the extinction of the contribution to the S System.

This measure reduced the social security contribution of companies in these economic sectors from 20% to a rate that varied from 1% to 4,5% (in the second period of the program) on the gross revenue of each company. In the first four years of the program (2012-2015) alone, this tax waiver reached R$25 billion, with direct impacts on the Social Security financing system. Data relating only to the year 2023 revealed that the drop in Federal Government revenue was in the order of R$9,2 billion.

Anticipating the end of the payroll tax relief policy scheduled to occur on December 31, 2023, leaders of the benefited business sectors resumed their lobbies with deputies and senators in mid-2023. From then on, Senator Efraim Filho (União Brasil -PB) presented in July 2023 the Bill (PL 334/23) proposing the extension of the exemptions in force on that date until 31.12.2027/01.08.23/2023. And from XNUMX/XNUMX/XNUMX, with unprecedented speed, the aforementioned project began to be processed by all committees of the National Congress, always on an urgent basis. This made it possible for it to be approved in August XNUMX.

Sent for presidential sanction, it was vetoed in full by President Lula on 23.11.2023/9,4/31.12.2027. According to the Presidency of the Republic, the government considered the project unconstitutional because it did not present the financial impacts of the tax waiver (relief on the payroll of the companies covered). For the Minister of Finance, the resignation would imply an amount of approximately R$XNUMX billion in the period defined by the new law (XNUMX/XNUMX/XNUMX), which would compromise the balance of public accounts, a goal pursued by current economic management.

As a result, the matter returned to the National Congress to analyze presidential vetoes. In meetings held on 14.12.2023/XNUMX/XNUMX, both in the Senate of the Republic and in the Chamber of Deputies, all of the President's vetoes were overturned by a large majority in both parliamentary houses. From then on, the matter became Ordinary Law no.o. 14.784, published in the Official Gazette of the Union on 28.12.2023/XNUMX/XNUMX.

The government's reaction was immediate. On 29.12.2023/1202/23, a Provisional Measure (MP 1202/2024) was launched with the aim of reducing the loss of revenue and, therefore, achieving the goal of zero deficit in public accounts. To this end, the MP changed the tax relief rules that had been approved by Congress, with emphasis on: (a) MP 90 proposed that from April 2021 a lower rate would be in force only for one minimum wage per worker. It should be noted that, although the MP comes into force immediately after being published, some proposed changes would only come into effect 2023 days after its publication; (b) the review of the Emergency Program for the Resumption of the Events Sector (PERSE) created in 2025 to help this sector with total tax relief during the pandemic, and such program should only last two years. However, in mid-XNUMX the National Congress extended this policy until the end of XNUMX.

Faced with negative political repercussions from segments of the National Congress, the government issued a new measure (MP 1208/24) on 28.02.2024/17/1202 revoking the re-encumbrance of the 23 sectors provided for by MP 14.784/23. As a result, these sectors were once again exempt from taxes as approved by Law XNUMX/XNUMX. This decision to backtrack by the government derived from agreements signed with political leaders of the National Congress, who imposed their forces on the government, making it almost a hostage to the interests of these segments mostly identified with the conservative political bases that currently dominate the National Congress.

Finally, on February 28.02.24, 493, President Lula sent a bill to the National Congress (PL 24/17) with the objective of defining a gradual increase in the payroll of the 14.784 sectors covered by Law 23/XNUMX.

Throughout this period, it is worth remembering that the lobby of these sectors articulated in the National Congress tried to convey to society as a whole the idea that the end of payroll tax relief would strongly reduce the economic growth of these sectors with negative implications on the level of employment. , at the same time as it would encourage informality in labor relations and reduce the country's economic competitiveness. To this end, they presented precarious data on the beneficial effects of this process on federal revenue in the period 2012-2019, without showing, however, what the impacts of this policy were on the labor market and the level of wages throughout its duration.

From a general model, entities representing the economic sectors benefiting from this tax policy constructed a narrative that has been widely disseminated by the media.[ii] without any question. In this debate, in fact, any voice disagreeing with the predominant narrative hardly has space to question and present their arguments. The lobbying discourse is basically based on the theme of employment. In this case, it was agreed to state that the benefited sectors are the biggest job generators in the country and that, if the tax exemption were eliminated, thousands of jobs could be reduced by 2026; that there will be an increase in labor costs and thus cuts in qualified professionals; that production in these sectors will stagnate; and that activity levels in these sectors could return to 2012 levels.

Furthermore, some studies on specific sectors show specific data that try to prove that the contribution of these sectors has increased, but always without mentioning any information regarding the labor market, especially the jobs created. Therefore, according to these business arguments, it was enough to reduce taxes and jobs would automatically arise. In practice, however, what was seen was an explosion in unemployment from 2014 to 2016, as is extensively documented in the specialized literature on the labor market in Brazil.

To counter this dominant lobby, there is a vast specialized literature on the subject, notably Takada et all (2015), Dallava (2014), Do Carmo (2012), Baumgartner (2017), Garcia, Sachsida and Carvalho (2018 ), Freitas and Paes (2018), among others. All these studies contain converging points that can be systematized as follows: (a) the exemption did not generate positive impacts either on the degree of formalization of the labor market or on the reallocation between sectors of economic activities; (b) there were no significant effects of the public tax exemption policy on formal employment as a whole in the country; (c) there were no positive effects of the tax exemption policy, either on employment or wages, in the tax-free sectors depending on the product; (d) when evaluating the long-term effect of payroll tax relief, it was found that employment growth levels were far below expectations, at the same time that social security revenue suffered sequential drops; (e) only in two sectors (call center and information technology) of the 17 beneficiaries were positive effects observed.[iii]

Among the main conclusions of these studies, the following can be highlighted: (i) the lack of a uniform criterion for the inclusion of beneficiaries, leading to the almost random inclusion of sectors without any prior study; (ii) the tax relief model implemented was restricted to a few taxpayers, representing a violation of equity, since the cost of this benefit for the public system had to be borne by society as a whole; (iii) the policy adopted made the tax system even more regressive because it is an indirect tax that affects consumption, penalizing the lower income strata of society much more; (iv) the Social Security financing system suffered imbalances because the tax waiver had a negative impact on the Union's fiscal result.

During discussions in the National Congress about extending exemptions until 2027, an important study authored by IPEA researcher Marcos Hecksher (2023) emerged. Using data from the Continuous PNAD between 2012 and 2022, the author showed that the country's Economically Active Population (EAP) grew from 89,6 million (2012) to 98,0 million (2022), meaning a positive variation of around 9,4 %. Furthermore, he indicated that seven sectors (none of them linked to the payroll tax relief policy) were responsible for generating 52,4% of the total number of employed people, a fact that denies the main argument of those in favor of payroll tax relief.

Regarding the 17 sectors that were exempted, the author verified the following situations: (a) none of them were among the sectors responsible for 52,4% of those employed; (b) the set of exempted sectors reduced the participation in the total number of employed persons in the country from 20,1% (2012) to 18,9% (2022); (c) among those employed in exempt sectors, only 54,9% contributed to social security, compared to 63,7% on average for workers in the country; (d) employees with a formal employment contract fell from 22,4% (2012) to 19,7% (2022); (e) employed social security contributors fell from 17,9% (2012) to 16,2% (2022); (f) private companies from other sectors increased formal employment by 6,3% (1,7 million); (g) exempted private companies reduced formal employment by 13% (-960 thousand workers).

Aiming to contribute to this debate, I created the table below with data from the Annual Social Information List (RAIS). As for the first period (2011-2014), it is observed that in absolute terms there was an expansion of 174.942 jobs, with eight exempt sectors reducing their employment levels, while nine others increased. Even so, the percentage of participation of exempt sectors in the country's total fell from 16,5% (2011) to 15,8% (2014).

In the case of the sectors that expanded employment, there was a concentration of approximately 90% in four of them: road freight transport, call center, IT and public road transport. In the case of the 8 sectors that excluded vacancies, there were no large dispersions, with a concentration in the footwear, construction, leather and vehicle and body manufacturing sectors.

In the period 2014-2021, a reduction of 873.943 jobs was noted in relation to the amount existing in 2014. As a result, the percentage of participation of these sectors in the country's employment was reduced to 14,3%, continuing what was observed in the previous period. In sectoral terms, it appears that 12 sectors suffered a reduction, while another five increased their employment levels. In the case of the sectors that reduced their employment levels, the highlights are Clothing and Clothing (-128.733), Civil Construction (-203.932), Construction and Infrastructure Works (-219.031) and Public Road Transport (-215.935).

Although at low levels, it is also worth highlighting the reductions that occurred in the leather, vehicle and body manufacturing, journalism and broadcasting and textile sectors. In the case of sectors that expanded employment levels, the IT sectors (190.784) and Cargo transport (129.401) stand out. In fact, these two sectors accounted for 93% of employment expansion over the 2014-2021 period. The call center, animal protein and metro passenger transport sectors showed small positive fluctuations that can be considered insignificant compared to the first two.

Table 1: Jobs generated by the 17 sectors with payroll tax relief between 2012 and 2021, according to RAIS/MT

2)Call Center391.2175,1489.5556,3498.6807,2
3)Clothing and Clothing666.6828,7651.7728,3496.2517,1
4)Civil Construction1.150.28515,11.114.38314,3747.16710,7
5)Construction and Infrastructure Works920.17012,1889.16411,4670.1339,6
7)Manufacture of vehicles and bodies526.0996,9489.2796,3425.0036,1
8)Broadcast Journalism94.0671,296.2611,276.6221,1
9)Machines and Equipment402.8825,3408.1185,2383.8435,5
10)Animal Protein50.8630,759.8620,874.9511,1
12) Information Technology (IT)278.4873,6341.1734,4531.9577,6
13)Technology. of Information. Communication (ICT)532.5727,0534.3556,8533.9367,7
14)Integrated Circuit Design42.2670,642.0800,530.8980,4
15) Metro Passenger Transport29.1830,432.8600,435.5820,5
16) Collective Road Transport716.8679,4770.9109,9554.9758,0
17) Road Freight Transport803.67110,5934.67512,01.064.07615,3
Total of 17 sectors7.635.698 7.810.610 6.936.676 
Country total**46.310.63116,549.571.51015,848.728.87114,3
Source; RAIS - Prepared by: NECAT
*percentage of the sector among the 17 sectors **percentage of the 16 sectors in the country

Finally, it is important to analyze the entire period of validity of the payroll tax relief policy (2012-2021), in light of the data made available by RAIS (2021 is the last year with available data). Initially, it is important to highlight that the percentage of participation of these 17 sectors in the total number of jobs generated in the country fell from 16,5% (2011) to 14,3% (2021). In absolute terms, it appears that throughout the time series considered there was a reduction of 699.022 jobs, with only six of the 17 exempt sectors increasing their employment levels in 2021, compared to 2011.

Next, we highlight the number of jobs reduced in the eleven sectors: footwear (-68.153), clothing and clothing (-170.431), civil construction (-403.118), construction and infrastructure works (-250.037), leather (-86.989) , manufacturing of vehicles and bodies (-101.096), journalism and broadcasting (-17.445), machinery and equipment (-19.039), textiles (-35.642), design of interconnected circuits (-11.369) and public road transport (-161.892). This meant a reduction of 1.325.211 jobs. Of this total, five sectors (clothing and clothing, civil construction, construction and infrastructure works, manufacturing of vehicles and collective road transport bodies) were responsible for 82% of all job reductions in the period considered.

From the point of view of the sectors that expanded jobs, the following scenario appears: road freight transport (+260.405), IT (+253.470), call center (+107.463), animal protein (+24.088), transport passenger railways (+6.399) and ICT (+1.364). This means that the first three sectors were responsible for 95% of the expansion of jobs.

In summary, this movement in the labor market of these seventeen sectors can be summarized as follows: in only three sectors (road freight transport, IT and call center) there was a significant expansion of jobs, while in another five sectors (civil construction, construction and infrastructure works, clothing and clothing, public road transport and body vehicle manufacturing) there was a significant retraction in the volume of employment in 2021 compared to the level existing in 2011. In the rest of the exempted sectors, there was a reduction in jobs of work, a fact that caused the participation of unemployed workers in total employment in the country to fall from 16,5% to 14,3%, which resulted in a reduction of approximately 700 thousand jobs.

Finally, it should be mentioned that the jobs created were significantly concentrated in just three exempt sectors (cal center, IT and road freight transport). Therefore, it can be stated that the tax exemption policy – ​​with regard to the labor market – did not promote the expansion of formality nor did it encourage the reallocation of labor between the different sectors of economic activities.

* Laura Mattei He is a professor at the Department of Economics and International Relations and at the postgraduate program in Business Administration, both at UFSC..


[I] Clothing and clothing, footwear, civil construction, call center, communication, construction and infrastructure works, leather, vehicle and body manufacturing, machinery and equipment, animal protein, textile, information technology, information and communication technology, circuit design integrated, metro-rail passenger transport, public road transport and road freight transport.

[ii] See headline of R7 Portal, Brasília (19.11.2023/XNUMX/XNUMX): “study shows that tax-free segments employ more and pay better”.

[iii] This expansion probably has more to do with the new structural parameters of the Brazilian economy than due to the tax exemption policy.

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