Brazilian IT Companies Fiercely Oppose 20% Payroll Tax

Brazilian IT companies are fiercely opposing the imposition of a 20% payroll tax, warning the government that the exorbitant levy would destroy more than 80,000 jobs in the technology services sector over the next few years.

The government has not introduced new taxes but has rolled back payroll tax exemption, meaning that IT companies must now pay a 20% payroll tax.

The country’s top technology firms – including Stefanini, Totvs, and BRQ – have joined forces with their smaller rivals in a desperate bid to reverse the government’s decision.

The new tax regime, applicable to more than 50 sectors, will come into effect on July 1. The government says the rollback was inevitable, as it has to raise 30 billion reais (US$9.5 billion) to narrow the fiscal deficits.

But IT companies say they cannot afford to pay so much money in payroll tax, arguing that they are reputed for paying the highest salary to their employees and that they spend a large chunk of their revenue on human talent.

“Information technology workers are among the highest paid. The end of this tax cut will generate a violent contraction of the sector,” said Sergio Gallindo, President of Brasscom, Brazil’s outsourcing lobby group, according to Bloomberg BNA.

These payroll tax breaks were introduced in 2011 to help companies impacted by the recession. The measure gave technology firms the option to pay a 1.5% to 2.5% tax on gross revenues instead of a 20% payroll tax.

The IT sector generated more than 95,000 jobs during the five years when payroll tax was exempted, according to Brasscom.

The rollback of tax breaks will not only threaten jobs, it will also weaken the research and development sector, and undermine the competitiveness of the country’s top technology firms in the international marketplace, warns the lobby group.