Brazil's Tax Exemption Deadline Extended Amid Political Tug-of-War

A Brazilian Supreme Court judge has extended the deadline to September 11 for lawmakers and the government to reach a deal on alternatives to tax exemptions that impact 17 economic sectors. Initially set for July 19, this postponement gives the government time to address the $4.84 billion revenue loss.

A Brazilian Supreme Court judge has extended the deadline for lawmakers and the government to reach a consensus on tax exemption alternatives, the court announced late Tuesday. The new deadline is now set for September 11, giving more time to address the financial impact on 17 economic sectors and small municipalities.

President Luiz Inacio Lula da Silva had originally vetoed Congress's bill extending payroll tax exemptions until 2027, but lawmakers blocked his veto. The Senate's recent decision to postpone a vote on compensatory measures aligned with government appeals for a deadline extension from the Supreme Court.

The government needs to offset revenue losses of 26.3 billion reais ($4.84 billion) from these tax benefits to meet its goal of eliminating the primary deficit this year. Alternative measures to bridge this shortfall include renegotiating fines by federal agencies, repatriating foreign funds, and updating asset valuations in the income tax system.

(With inputs from agencies.)