Brazil’s highest court has temporarily suspended the payroll tax exemption law

By Ricardo Brito

BRASILIA (Reuters) – A Brazilian Supreme Court judge on Thursday temporarily suspended a law extending payroll tax exemptions for 17 sectors of the economy, according to a decision seen by Reuters.

Judge Cristiano Zanin issued an order suspending part of the law at the government’s request.

President Luiz Inacio Lula da Silva last year vetoed the bill passed by Congress extending payroll tax exemptions until 2027, but lawmakers later voted to block his veto.

That prompted Lula’s government to ask the highest court to declare the law unconstitutional, saying the left-wing leader’s economic team sees payroll tax revenues as essential for balancing public accounts.

Zanin’s preliminary decision will now be analyzed by the other members of the Supreme Court, who will vote on whether or not to uphold it.

Brazil’s attorney general argued in his request for an injunction earlier this week that the extension of the tax exemption had been approved by Congress “without adequate demonstration of the financial impact of the measure,” as required by the constitution.

The suspension of parts of the law will be in effect until the financial implications are made clear by Congress, or until the Supreme Court reaches a final ruling on the issue, according to Zanin’s decision.

Zanin, who was appointed to the Supreme Court by Lula last year, said his decision was aimed at preventing a “billion-dollar budget disaster” that could happen if the law were to remain in force until a final court ruling.

The head of Brazil’s Senate, Rodrigo Pacheco, said he respected the judge’s decision but would argue against it. He added that lawmakers “chose to preserve jobs” by expanding tax exemptions and that decision should be respected.

Pacheco in a statement criticized the government for taking the case to court, calling it a “mistake,” and said he would convene Senate leaders, lawyers and advisers on Friday to discuss the case.

The expansion of the tax exemption, which also includes some small cities, will reduce Brazil’s tax revenue by an estimated 10 billion reais ($1.9 billion) a year, according to the government.

(Reporting by Ricardo Brito and Bernardo Caram in Brasilia; Writing by Andre Romani; Editing by Gabriel Araujo and Diane Craft)