The Brazilian government has decided to permanently reduce payroll tax on a wide range of industries, including information technology, call centers and telecommunications, in a bid to reinvigorate slowing employment growth.
A temporary measure to provide tax relief was due to expire at the end of this year, but the measure will now be made permanent, according to Agência Brasil which cited Finance Minister Guido Mantega.
This means a 20% tax on payrolls will be permanently eliminated; instead employers will pay just 1% or 2% tax on their revenue, depending on the industry.
Payroll tax exemption, estimated to cost the government US$9.8 billion in lost revenue annually, was one of the chief demands of the country’s electrical and information technologies companies. The government says it will extend the exception to other industries in the months to come.
More details about the tax breaks will be announced next week, according to the news agency. Analysts say the tax relief will benefit those businesses with the largest workforces.
Tax breaks will make Brazilian companies more competitive, Mantega said, according to the news agency. Brazil’s economy is forecast to grow less than 3% this year, despite being the host country for this year’s soccer World Cup.
The government will need congressional approval to extend tax breaks, but Mantega said he is confident of pushing the measures through the legislature.
According to a recent report from the Organization for Economic Cooperation and Development (OECD), Argentina and Brazil draw more taxes on goods and services than anywhere else in Latin America and the Caribbean.
The decision to provide tax breaks comes after Mantega met President Dilma Rousseff along with three dozen entrepreneurs from various industries, including IT and telecommunications.