Brazil readies measures to help sectors hit by veto on tax benefits

SAO PAULO (Reuters) – Brazil’s Finance Minister Fernando Haddad said on Friday that the government will introduce measures to help the 17 sectors affected by a presidential veto of a bill aimed at extending a payroll tax exemption.

Haddad told reporters the measures would be presented after government officials return from the COP28 climate summit in Dubai.

“When Congress becomes aware of what we intend to do, I believe this situation will be resolved,” said the minister, without detailing any initiative.

President Luiz Inacio Lula da Silva vetoed the bill on Thursday citing concerns that it entailed revenue loss without specifying compensatory measures. The project passed by Congress in October would extend the tax benefits until 2027.

The move came as his administration tries to push through measures aimed at achieving an ambitious target of erasing the primary deficit by 2024, with some encountering resistance in Congress.

The veto could yet be reversed by lawmakers if absolute majorities in both the lower house and Senate cast votes in favor of the bill’s reinstatement.

The government had emphasized its commitment to help affected sectors after the approval of a consumption tax reform and a measure designed to generate 35 billion reais ($7 billion) in 2024 by preventing state tax discounts from reducing companies’ taxable income for federal revenue purposes, said Haddad.

He reiterated the government’s goal of achieving fiscal balance and said this would be accomplished through tackling tax distortions.

Haddad also attributed a fall in public revenue in the third quarter to the economic downturn spurred by high-interest rates.

“High interest and high deficit need to be corrected in the shortest possible time,” he said.

($1 = 4.9059 reais)