The issue of payroll taxation had a new chapter at the turn of the year that should maintain tension in the federal government’s relationship with Congress. At the end of last year, a law was approved that extended the period of granted payroll exemptions for some sectors of the economy. Alleging budgetary inconsistencies, the federal government vetoed the extension of the benefit, but Congress overturned the veto.

On the last day of the year, the government doubled down and issued Provisional Measure 1,202/2023, again extinguishing the exemption as it attempted with the veto of the law. In addition to this topic, the MP 1,202, which has an obvious fundraising purpose, also establishes time limits for the offset of credits from taxpayers that obtained favorable court decisions, as well as revoking other tax benefits for the events sector.

In addition to the political issue that must be monitored, as Congress must now analyze whether or not to convert the MP into law, there are also important legal issues to be aware of based on the text of the MP 1,202.

The limitation of the right to offset credits arising from court decisions, for example, is a significant novelty that greatly affects the financial planning of many taxpayers who obtained the long-awaited final decision on the exclusion of ICMS from the PIS COFINS base last year , for example. At the very least, due to the relevance of thew matter and frustration of taxpayers’ fair expectations, this type of change can be questioned as it would not have the urgency requirement necessary to be included in a Provisional Measure.

It is therefore recommended that all affected taxpayers must carefully monitor and analyze the evolution of the discussions of this MP. The process of its conversion into law in Congress should be heated. It is expected that taxpayers would bring such legal challenges of the MP 1,202 to courts if this scenario continues.