An Overview of Tax Reform: Payroll


In addition to the broader tax reform targeting consumption and income, the government has also presented alternative proposals for payroll tax relief. This involves replacing the companies’ social security contribution based on payroll with a tax on revenue.

The idea behind payroll tax relief is to reduce labor costs for businesses, encouraging job creation and formalizing the labor market. Currently, companies pay a social security contribution ranging from 20% to 22.5% on their payroll, which can be a hindrance to hiring new employees.

Therefore, PEC 110/2019 proposes reducing the employer’s contribution rate on payroll to 7.5%. The aim is to reduce the tax burden on companies and increase economic competitiveness. This change could particularly benefit businesses with higher labor costs.

On the other hand, PEC 45/2019 proposes replacing the employer’s contribution on payroll with the Contribution on Goods and Services (CBS), which would be a value-added tax on the production and distribution of goods and services. This change aims to reduce the tax burden on payroll, which could encourage job creation and enhance economic competitiveness.

However, payroll tax relief is a controversial measure that sparks debates among economists and business owners. Some argue that the measure could be positive for stimulating the economy and job creation, while others contend that it may harm social security revenue and worker benefits.

Additionally, payroll tax relief is not the only measure under discussion to reduce labor costs. Other proposals include creating a tax on financial transactions, reducing taxes on products and services, and simplifying corporate tax obligations.

In summary, tax reform proposals include significant changes in payroll taxation with the goal of reducing the tax burden on companies, encouraging job creation, and enhancing economic competitiveness. These proposed changes are controversial and generate discussions regarding their impact on government revenue and various sectors of society.


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