Entrepreneurs will suggest ‘new CPMF’ to fund retirements
A group of businessmen from the service and commerce sectors advocates replacing payroll taxes with a new broad-based tax levied on the financial transactions of all Brazilians to pay for social security. The provisional name of the tax is CP, or Social Security Contribution and it has similarities and also differences with the extinct CPMF (Provisional Contribution on Financial Transactions).
Like the CPMF, the CP, if approved, will be charged on all financial transactions and digital commerce. The difference is that it will not be provisional and will be linked exclusively to the financing of social security. Its defenders want to avoid deviations as happened with the CMPF, created to finance Health and later changed to Welfare and Poverty Eradication. The CPMF rates ranged from 0.20% to 0.38% throughout the term. Studies for the PC point to a rate of 0.74%, but this point is still open.
The formal discussion of the proposal, which has already been debated behind the scenes, will begin at the event “Forum for the Payroll Exemption”, with the presence of businessmen (Instituto Unidos pelo Brasil), parliamentarians (Parliamentary Front for Entrepreneurship) and the Economy Minister Paulo Guedes, this Thursday (1st), in São Paulo. Guedes defends the broad-based tax and tried to include it in one of the tax reform proposals that are being processed in Congress, but he backed off due to resistance. The proposal will also be delivered to all presidential candidates.
The objective of businessmen and parliamentarians who agree with the thesis of practically zeroing the payroll tax and replacing it with a tax on financial transactions is to solve two problems in the country: the high cost of formal jobs, which leads to informality and inhibits growth, and the financing of social security. The other argument is that article 195 of the Constitution says that social security needs to be financed by the whole society.
Today, those who finance social security in Brazil are employers and employees with a formal contract. The employer pays around 20% to the INSS, in addition to other taxes, and the employee pays between 8% and 11%, with a payroll deduction. The argument of those who defend the proposal is that with the current model, one hour the social security will break.
“The equation does not close. We have fewer and fewer people working in the CLT system [com carteira assinada e, portanto contribuindo à Previdência], and more and more Brazilians getting older and needing Social Security. We need a new form of financing, other than the current one”, says Luigi Nese, president of the National Confederation of Services, who has defended the broad-based tax since 2000 and says he has almost been “thrown out the window” with the proposal to the Executive in the past.
The resistances, as you can see, are enormous. The similarity of the tax with the CPMF, which carries a bad memory among Brazilians, ends up blocking the debate. In the corridors of Congress it is easy to find parliamentarians in favor of the tax exemption, but it is difficult to find those who would agree to vote in favor of the new way of taxing.
“We’re talking about a mini-tax reform, it’s no use thinking that we’re going to throw this like a bomb on Congress and it will pass. That’s why we want to bring the debate. This debate needs to permeate society. I disagree that it is the return of the CPMF, we are dealing with tax exemption. The image of the CPMF gets in the way because it came in the past as an extra tax. The government squeezing the people to collect more. This is the logic we have to change. What we are proposing is a replacement. I voted against the CPMF. Now we are talking about releasing and replacing”, says deputy Joaquim Passarinho (PL-PA).
In Congress, the group’s idea is to present the proposal as an amendment to PEC 7/2020, authored by federal deputy Luiz Philippe de Orleans e Bragança (PL-SP), reported by deputy Bia Kicis (PL-DF), both from the support base of the Bolsonaro government. The amendment is still in the signature collection phase. PEC 7 is a tax reform that intends to replace several taxes by three: on consumption, income and property, with competence shared by the Union, States and municipalities.
The proposal to change the current taxes on hiring by CP is supported by the services and commerce sector, which are more labor intensive, but face resistance in the industry (which supports PEC 110/2019) and financial sectors.
Positive points pointed out by the proponents of the proposal
- Increase in the net salary of employees with a formal contract, who will have a reduction in the current contribution to the INSS;
- Reduction in the cost of hiring by around 20% for the entrepreneur and encouraging formal hiring;
- Reduction of litigation, questions about the incidence of taxes on vacations and benefits, for example;
- Funding of social security by a broad base of contributors, avoiding new reforms.
- Democratic contribution, everyone pays.
- Easy collection and inspection, even activities that today evade taxes will start paying.
- New digital activities that today are not taxed will pay this tribute.
Negative point pointed out by critics of the proposal
- Each financial movement will generate a microtax. If the rate of 0.74% is maintained, when withdrawing R$ 1000, or paying a bill in this amount, the taxpayer will pay R$ 7.40 of contribution. If the worker moves BRL 3,000, the amount will be BRL 22. If it is BRL 30,000, BRL 220.
After the column was published, Instituto Unidos Brasil sent a clarification note and the report was amended to include the position below.
Note to UOL
The Instituto Unidos Brasil (IUB) clarifies that the event this Thursday (1st), in São Paulo, will deal with the exemption of the payroll and its role in the generation of jobs and competitiveness. After the event, we will send a manifesto to presidential candidates, party presidents and the presidents of the Legislature, so that the discussion on an unrestricted and structured policy of exemptions can be placed as a priority agenda in 2023.
We understand that the debate on the best way to finance an eventual policy such as the one we defend should be conducted within the scope of a great national debate, involving the Executive, Legislative and organized society, a process to which the IUB will be honored to give its contribution.
Instituto Unidos Brasil’s Communications Office