Differentiation of contributory categories

18 Brazil - The extension of the General Social Insurance Scheme b Super Simples In 2006, the Simples Nacional National Simple, or Super Simples, was created Governing Law n. º 123, of December 14, replacing the Simples and establishing a new company tax treatment, which included in its package of mandated payments taxes on movement of goods and service provision, tax on services of any nature, as well as State and local taxes, which were not included in the previous system. This reform established the deduction at source of mandatory contributions. As in Simples, the rate was reduced as regards the general system. Such reduction was made gradually, from the companies monthly sales. This reform eliminated the companies obligation to keep regular accounting. The benefits granted to small and medium companies stemming from the creation of Simples and its subsequent extension Super Simples are described in table 2. Table 3. Brazil: Benefits of Programmes Simples and Super Simples Taxes and contributions included in Super Simples Taxes and contributions included in Simples Income tax Tax on Financial Transactions Contribution to the Social Integration Programme PIS, and the Heritage Training Programme for Civil Servants Tax on the Import of Foreign Products Social Contribution on Gross Income Tax on exports Contribution for the Financing of Social Security Tax on Legal Persons Income Tax on industrialized products Tax on Rural Property Tax on movement of goods and service providing Social Security Contribution on Financial Movement Tax on services of any nature Contribution to the Guarantee Fund for Time of Service Contributions to Social Security by legal persons Contributions to the Workers Social Insurance State and local taxes Source: Alves Rangel et al., 2009. c Supplementary Law One of the last measures adopted by the Brazilian authorities with the aim of reducing and simplifying company taxation and contributions, and consequently extend social security was the creation of Supplementary Law n.º 128 2008, aimed at individual micro company owners whose turnover limit is 3,000 Rper month. This Law works as an extension of the Super Simples, directed at Brazils smaller companies which deserve further special treatment. The main advantages are: 1. the fact that the taxation of each of these units is determined by a fixed monthly fee, regardless of income earned during that period and 2. the fact that the units covered by this Law are exempt from income tax, from tax on industrial products, from contributions to the Social Integration Programme, from contributions for social security financing, and from employer contributions to the INSS. As a result of these exemptions, companies covered by the Supplementary Law must fulfil only the following obligations: 1. 11 per cent of the minimum salary, corresponding Innovations in extending social insurance coverage to independent workers 19 to the workers social security contribution, 2. R 1.00 due to tax on movement of goods and service providing and 3. R 5.00 due to tax on services of any nature. The implementation of such programmes targeted at micro, small, and medium companies has brought about important changes in the recent years. According to Delgado et al. 2007, in the period 2000-2005 there was a significant increase 40 per cent in the number of companies choosing the Simples Law, which translates into such companies regularization, and in the consequent integration of their workers into the social security system. This author also mentions the evolution regarding employed workers, which strengthens the argument that such programmes benefit the bonds of formal work. In this regard, according to the data, there has been a significant increase in the number of employed workers declared by registered companies, which showed a steady increase average of approximately 18 per cent during the 2000-2005 period. Finally, Saravia 2009 has observed an important increase in the number of contributors to the Social Protection System in the 2000-2006 period, the largest increase being recorded among lower wage levels. The latter are related to the workers in the informal sector, who are the main target group for the schemes detailed above.