Brazilian IT companies fear job losses as tax increases

The government wants to end the current payroll tax breaks as soon as possible; relief has been in place since 2011

The Brazilian government wants IT services companies to starting paying higher payroll taxes in order to meet its own budgetary goals despite concerns over job and salary losses.

Measures being voted by the Brazilian Senate will remove 70,000 companies from 56 industry sectors, including IT, from the current payroll tax relief scheme.

This would mean savings to the government of up to R$10bn ($3.1bn) a year, as payroll tax contributions that were supposed to come from corporates were coming from the treasury instead and going into workers' retirement funds.

The good news for IT companies is that the Senate is trying to postpone the vote till August - which means there will be further delay before the measures take effect, as such changes can only be enforced with a 90-day notice.

The government is now deciding how to handle the voting of the proposed changes, given its priority status.

Back in 2011, the Brazilian government introduced lower payroll taxation to drive growth in some sectors of the economy, with a 1-2 percent tax on gross revenue in place of a 20 percent payroll tax rate. The new measures would mean an increase to 2-4,5 percent.

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Some companies such as call center firms, transport and food production will receive special treatment and have their payroll taxes increased at a lower level, between 1,5 percent and 3 percent - and that's the same kind of taxation level IT firms are looking to get.

According to Brasscom, the Brazilian association of IT companies, the ideal scenario is one where all sectors would have a maximum of a half percent increase in payroll tax or else cope with side effects such as job losses and reduction of salaries.

Another concern voiced by the trade body is that improvements resulting from the introduction of the payroll tax breaks introduced in 2010 - such as the creation of 88,000 IT jobs in four years, as well as the reduction of the risks associated to an informal jobs market - will be lost if the new tax regime is enforced.