Changes of rapporteur improve reform proposal

Mercado welcomed the changes made by the rapporteur to the income tax reform proposal in the Assembly. Photo: Marcello Casal Jr / Agência Brasil

The changes made by MP Celso Sabino (PSDB-PA) to the government’s income tax reform project have helped to reduce some obstacles around the approval of the text. In a preliminary report, presented on Tuesday (13) to party leader and House Speaker Arthur Lira (PP-AL), Sabino proposes, among other measures, to reduce the corporate income tax rate of 12.5 percentage points. Legal person (IRPJ) and maintain the exemption of real estate investment funds (FII).

In the version delivered by the Minister of the Economy Paulo Guedes, at the end of June, the bill provided for a drop of five points in the IRPJ in two years. With the proposal to tax the distribution of dividends at 20%, currently exempt, entrepreneurs would in many cases find themselves with an increase in the tax burden, which generated a wave of criticism of the text. Another point considered negative by businessmen, investors and market analysts was the forecast for taxation of income from IFIs at the rate of 15%.

In a report, XP Investimentos assesses that the presentation of the preliminary report “seems to have helped to overcome the immediate resistance which was manifested among the deputies to the initial draft”, “although there are still areas to be worked on in the future. “. Representatives of the industry have also favored the changes, although they advocate more adjustments.

For the tax expert Luís Wulff, CEO of the Brazil Tax Group (GFBR) and the Tax Group, the more aggressive reduction of the IRPJ is positive for the development of business in the country, since, with the collection of tax on the distribution of profits, there is a trend towards greater reinvestment of profits.

“The report maintained the taxation of dividends, which was expected; all the economies in the world are doing it, ”he emphasizes. “Our review [ao
texto original] was supposed to come with an overall increase in the burden on business, but in the case as proposed now, it looks more attractive for many industries.

Wulff, on the other hand, considers the extinction of interest on equity (JCP) negative, a measure maintained by Sabino in his report. “It’s a way for the partners themselves to invest their capital in the business at a lower interest rate than the market. This has no negative effect on the Union and it helps businesses a lot, ”he said.

Investors celebrate continued FII exemption

In the financial market, investors celebrated the fact that Sabino’s opinion maintains the exemption from the distribution of rents for REITs. The government’s proposal to tax income has drawn criticism as it could discourage the acquisition of assets, an important source of finance for the construction sector.

Even on the eve of the publication of the Sabino report, the IFIX, the index of real estate investment funds, recorded an increase of 1.3% in view of the anticipation of the evolution of the project. On Tuesday there was a further increase of 0.93%.

Financial advisor André Chede, founding partner of Turing, welcomes the option of the project rapporteur to withdraw the tax forecast. “I think it’s a very good decision,” he said. Because they are exempt, real estate funds tend to attract small investors looking for a source of tax-free monthly income. By law, FII administrators must distribute at least 95% of the result in cash.

In Wulff’s view, maintaining the exemption for IFIs was political, due to pressure from an industry lobby. “To the extent that the proposal removes benefits from the tax rule for certain sectors, I understand that these IFIs should have taxed like any other investment fund,” he says.

On Tuesday, Sabino said that, to offset the reduction in the IRPJ rate, there would be reduced subsidies for sectors such as chemicals and pharmaceuticals, cosmetics and perfumes, in addition to the shipbuilding and aircraft industry. He also proposed the end of the PIS and Cofins benefits for thermoelectric power plants in the purchase of coal and gas and the deduction of business expenses under the Worker Power Program (PAT).

Chede, on the other hand, considers that the differential treatment of IFIs and funds intended for the financing of agribusiness, like Fiagro, is justifiable because they have a social purpose. “When you look at the country’s two state-owned banks, Banco do Brasil focuses on agribusiness and Caixa, on popular real estate finance. This is because there are differences in the essence of these two segments compared to others that reduce the tax break, ”he said.

The final version of the Sabino report must be tabled before Friday (14) in the Chamber of Deputies and can still receive amendments from other parliamentarians. The plenary vote of the House must take place after the parliamentary recess, from August 1, before the text is sent to the Senate.

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