MP 1,227 should cause a negative impact of R$29.2 billion on the industry, points out CNI

The National Confederation of Industry (CNI) estimates that Provisional Measure number 1,227 should cause a negative impact of R$29.2 billion on the industry in the seven months of its validity in 2024. In 2025, the negative impact should reach R$60 .8 billion. The maintenance of the payroll tax exemption, which caused the publication of the MP, has a positive impact on the industry of R$9.3 billion this year.

CNI, Industrial federations and associations present declaration for Brazilian reindustrialization

Economist and lawyer Alessandro Azzoni points out that this MP brings significant changes to tax compensation regimes, especially for unpaid debts.

He explains that the tax overpayment is an amount that business owners pay in excess when collecting tax, which can happen for a variety of reasons, such as the exemption of a product that was previously taxed and an error in the calculation basis. Therefore, these entrepreneurs have the right to compensation.

“There is a compensation regime. So I file a process, find out how much I overpaid, update this amount and I would make monthly compensations for my tax. With this new rule, they want to define a minimum period for tax compensation,” he explains.

MP 1,227 limits the use of tax credits with the Social Interaction Program/Contribution for Social Security Financing (PIS/Cofins), which results in an indirect increase in the tax burden for the company.

André Galhardo, economic consultant at Remessa Online, states that he recognizes the need for the government to collect more taxes, but it is “important” not to lose sight of the need to get the domestic industry “on its feet” again.

“There is no point, on the one hand, approving an accelerated depreciation project, which aims to provide greater liquidity for Brazilian industry, if on the other you go against the grain and take away this liquidity through the approval of this MP”, he points out.

She points out that the MP significantly impacts one of the sectors that has been most harmed in Brazil, due to excessive bureaucracy and high interest rates.

Other impacts

According to the CNI, MP 1,227, together with other measures from last year, could cause a total negative impact of R$79.1 billion for the industry this year.

One of these measures is the taxation of subsidies for investment and funding, which causes companies to lose around R$25.9 billion. Another measure is the temporal limitation on the use of federal tax credits resulting from a court decision (Law 14,873/2024), with losses estimated at R$24 billion.

Asafe Gonçalves, specialist in tax law and managing partner of Asafe Gonçalves Advogados, points out that the CNI sees this MP as a setback for competitiveness in the country.

For the expert, the “problem” is that the MP is taking place in a context in which the Brazilian government is trying to restore the competitiveness of the industry, with the proposal of the New Industry of Brazil.

“If we think about it, this measure is trying to balance public accounts. But it is doing this at the expense of the financial health of the industries. The problem is that it is crucial for the country’s economic development to have a strong industry. So, this situation requires a very careful assessment of the long-term benefits of these fiscal policies in relation to the potential damage to the competitiveness of the industry”, he highlights.

Associations

In a note, the Brazilian Association of the Machinery and Equipment Industry (ABIMAQ) stated that these types of measures cannot be concentrated solely on increasing tax revenue. They must also be aimed at reducing public expenditure.

“The productive sectors, in particular the manufacturing industry, which plays an extremely important role in the economy as a producer of goods with higher added value and which contributes most to tax collection and the generation and maintenance of better paid jobs, are, once again , urged to bear the increased tax burden and postponement of the return, by the federal treasury, of tax credits that will no longer be compensated”, points out the note.

For the executive president of the Brazilian Chemical Industry Association (Abiquim), André Passos Cordeiro, this measure comes at a time of fragility in the Brazilian chemical industry, as national production “suffers” from the unrestrained entry of imported products.

“(Furthermore), this decision goes completely against initiatives that the current government has been rightly taking to promote neo-industrialization in the country. Among them, the resumption of the Special Chemical Industry Regime (REIQ)”, he highlights.