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Project raises corporate and middle class tax burden
Interview granted by Ana Carolina Monguilod to Valor Econômico I July 01, 2021, at 05:01 AM
Experts interviewed by Valor say that the government has weighed its hand
The Income Tax reform, if approved by the Congress, may increase the tax burden for companies and also for individuals. Experts interviewed by Valor say that the government has weighed its hand. The text presented last week expands the exemption range for individuals - from R$ 1.9 thousand to R$ 2.5 thousand - but limits the use of simplified declaration, making the middle class pay more taxes.
The productive sector is also concerned about the return of taxation on profits and dividends, which have been exempt since 1995. Under the reform proposal, companies will have to withhold 20% as tax when distributing the amounts to their shareholders. There would be exemption for the range of up to R$ 20 thousand per month.
The taxation of dividends would come as a counterpart to the reduction of the Corporate Income Tax (IRPJ). There would be 5% less in the rate, with a reduction in two years: from the current 15% to 12.5% in 2022 and to 10% in 2023. The Minister of Economy, Paulo Guedes, however, said this week that the reduction could come at once in 2022.
There would be no changes in relation to the 10% tax on the portion of the real profit exceeding R$ 20 thousand per month. As a rule, companies pay 34% income tax and CSLL, and with the reform they would pay 29%.
However, according to the lawyers, adding the reduction of the IRPJ with the taxation of the partner's dividends, the bill would be much higher than it is today. According to the Brazilian Institute of Planning and Taxation (IBPT), there would be more than a 30% increase in the tax burden for real profit companies. The service providers that are in the presumed profit would suffer more: already in 2022 they would have to bear a tax increase of 62.88%.
For the federal government, however, the account cannot be made this way, adding the two things together. José Tostes Neto, secretary of the Internal Revenue Service, has stated that the dividend tax is levied on the earnings of individuals and, for this reason, cannot be counted as a corporate burden.
"There is, perhaps unintentionally, a confusion made between the taxation of the legal entity versus the taxation of the individual," he said in an interview with Valor on Tuesday, reinforcing that, for companies, there will be a tax reduction.
Lawyers disagree. Ana Carolina Monguilod, partner at i2a Advogados, professor at Insper and researcher at FGV-SP, says that any country in the world, when adopting the model of taxation of the company and the dividends of the partners, does so in a coordinated and combined manner. "Because what matters is the global taxation that you have on the income generated by the business. This combination cannot be overdone," he says.
Attorney Clarissa Machado, a partner at Trench Rossi Watanabe, says that the dividend taxation proposal was expected, but came at a bad moment and with a greater impact than the market expected. "Most countries have this type of taxation that burdens the recipient and not the company," she says. Formally, she stresses, there is a difference between taxing the entrepreneur and the company, but in practice this affects the intention to invest.
"The way it [the government's proposal] ends up favoring speculative capital and not productive capital. The investor will have more advantages, from the tax point of view, if he invests in the capital market than if he sets up a company," adds attorney Erlan Valverde, from the law firm TozziniFreire.
According to the Federal Revenue Service, R$359 billion in profits and dividends were distributed in 2019. A study by economists Manoel Pires and Fabio Goto, published this week in FGV Ibre's Fiscal Policy Observatory, cites this data and says that taxation could result in a potential collection of R$ 71 billion.
He considers, however, that the institution of a 20% tax rate should change the taxpayer's behavior. For this reason, considering a 50% reduction in the distribution of profits and dividends, the collection would be estimated at R$30.5 billion.
This same study also presents data on the changes planned for the Individual Income Tax (IRPF) table. It says that the restriction on the use of the simplified declaration will increase the tax burden for 6.8 million taxpayers. The tax due, with this restriction, would be increased by R$ 11.6 billion.
Today, any taxpayer can opt for the simplified declaration. This mode provides an automatic discount of 20% - up to R$16,754.34 - without the need to prove deductible expenses. Under the government's proposal, however, only taxpayers with annual income of up to R$40,000 (about three minimum wages per month) could continue in this mode.
"It is like giving with one hand and taking away with the other. You increase the exemption range, but end up with a relevant instrument for many people," says Fernando Colucci, partner at Machado Meyer law firm.
See the full article: https://valor.globo.com/legislacao/noticia/2021/07/01/projeto-eleva-carga-tributaria-de-empresas-e-classe-media.ghtml
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