Brazil Senate debates overhaul of payroll social security tax

On June 30, a public hearing was held in the Senate's Constitution and Justice Committee to discuss a constitutional amendment (PEC 1/2026) proposed by Senator Laércio Oliveira. The bill would replace the current 20% payroll‑based contribution to the National Institute of Social Security (INSS) with a maximum 1.4% levy on gross revenue, starting in 2027. Proponents argue the change would reduce labor costs, stimulate formal employment, and address demographic pressure as the elderly population is set to double in two decades. Opponents, representing labor‑intensive sectors, call for a dual‑option system that lets companies continue contributing on the payroll basis, warning that a revenue‑based rate could disadvantage sectors with low labor intensity such as dairy.

Separately, the Federal Revenue Service issued Consultation Solution Cosit No. 91/2026, clarifying that performance‑based awards granted by employers may be excluded from social security contribution calculations if they meet strict criteria: the award must stem from superior individual performance, be given voluntarily, and not arise from contractual or collective‑labor obligations. The exemption applies only to employees, not to individual contributors. This guidance outlines documentation requirements to prevent such prizes from being treated as regular salary.

Both developments focus on reshaping how Brazilian companies fund the social security system, either through a structural tax shift or through targeted exemptions for incentive rewards.