BRASILIA (Reuters) – The Brazilian Senate approved a bill on Tuesday containing measures to offset the effects of a payroll tax exemption, in a key step to solve a months-long struggle between Congress and President Luiz Inacio Lula da Silva’s administration.
The final version of the bill did not include a proposal to hike taxes on the so-called “interest on equity” payments, as this part of the text was withdrawn before voting.
Congress approved a bill last year focused on extending a payroll tax exemption for 17 labour sectors until 2027, but Lula vetoed the measure, just to have it overturned again by lawmakers.
The government then got Brazil’s top court to suspend the law extending the tax waiver, as Lula’s administration argued that Congress needed to propose measures to offset the missed revenue from the tax exemptions in order for them to become valid, putting them in line with the country’s current fiscal framework.
The bill passed on Tuesday following months of negotiations between the government and lawmakers maintains the payroll tax exemption through the end of the year, while reducing gradually from 2025 to 2027.
State programs targeting companies’ debt renegotiations with government regulatory bodies and the repatriation of resources held abroad are among the measures regulated in the bill.
The bill will now go to the lower house for voting, after which it would need Lula’s sign-off to become law.
