While many countries impose quarantines and announce fiscal stimulus programs to mitigate the spread of COVID-19, Brazil’s president has been taking a more hands-off approach, encouraging people to socialize and return to work.
President Jair Bolsonaro has questioned the death toll reported for Sao Paulo, Brazil’s largest state, and has dismissed measures announced by many of the country’s governors to shut down nonessential businesses and public services. “I'm sorry, some people will die," he said in a televised interview March 27. "They will die; that's life. You can't stop a car factory because of traffic deaths."
Despite Bolsonaro’s blunt public response to the pandemic, his government has taken some steps to deal with the crisis. Minister of Justice Sérgio Moro has closed the country’s airports to nonresidents, and the central bank has moved to inject liquidity into the economy.
Francisco Moreira, a tax partner with Bocater, Camargo, Costa e Silva, said the government has announced some measures to help small and medium-size enterprises, including the deferral of the SIMPLES Nacional, a scheme that allows smaller companies to make a single payment for several corporate, employment, and social contribution taxes. Smaller businesses also qualify for loans that are contingent on maintaining employment levels during the quarantine period.
“The only measures that will benefit larger enterprises are the deferral of [Federal Severance Pay Fund] deposits and the 50 percent reduction in the calculation basis of the ‘System S’ contribution, which is normally 7 percent of payroll,” Moreira said in an email. System S is a regime by which nongovernmental organizations use mandatory employer contributions to develop and conduct employee training programs.
Bruno Lavieri, an economist with consulting firm 4E Consultoria, said most of the measures announced by the government to deal with the pandemic focus on the spending side and not on lowering taxes. “And even those are not very significant,” he added. “For now, it seems the government is still a bit lost regarding what actions to take, so it seems there isn’t really anything relevant in the pipeline. Additionally, the more liberal bias of [Finance] Minister [Paulo Guedes] doesn’t lead us to think there will be more relevant measures over the coming weeks.”
Moreira said larger businesses were expecting a 90-day deferral of the deadline for paying federal taxes, based on an ordinance under consideration allowing a three-month extension of tax due dates in the case of a natural disaster. “Federal Revenue Service officials have already stated that the [ordinance’s] terms will not apply to the current situation,” Moreira said. “Because of that, several companies are filing writs of mandamus to ask for a judicial order to defer [payments] based on the [ordinance’s] text.”
Fabio Klein of Tendências Consultoria Integrada, an economics consultancy in Sao Paulo, said it is hard to say whether the measures taken by the government are adequate. “Many focus on small and medium-size companies,” he said. “Maybe sole proprietorships should also get some tax relief. I haven’t seen any measures benefiting them.”
While many other countries are using their tax systems to help suddenly strapped taxpayers, Brazil appears to be heading in the opposite direction with some measures that are under consideration. Moreira said the National Congress is discussing the introduction of a temporary 0.5 percent tax on net wealth over $1 million, increasing to 4 percent for assets over $8 million. Other legislation under discussion would allow the government to require companies with equity over BRL 1 billion (around $195 million) to loan the state up to 10 percent of their net profits.
“Last Saturday Finance Minister Paulo Guedes went public to explain that spending over the budget will be necessary to save the economy,” Moreira said. “We see the government providing additional social benefits for informal, unregistered employees, who account for over 50 percent of the country’s workforce.”
By publicly challenging calls for people to stay home during the pandemic, Bolsonaro could be risking his presidency, Lavieri said. “Even though the lack of announced measures is causing him political harm, his position regarding social isolation is by far a more severe issue for his political career,” he added.
“We see . . . a disconnect between Bolsonaro’s actions — asking people to return to work — and [those of] his technical ministers, such as Paulo Guedes or Health Minister [Luiz Henrique] Mandetta,” Moreira said. “The bigger threat to Bolsonaro’s presidency is more of losing the [people’s] support, which he thinks is addressed by the direct wealth transfers he is introducing for needy individuals.”
The Estado de São Paulo newspaper reported March 28 that Bolsonaro told Mandetta that he will be fired if he publicly criticizes the president’s handling of the health crisis. Mandetta reportedly had told Bolsonaro that he would have to speak out if the president ignored warnings to not go out in public.