The income tax law reform plan poses at least five threats to businesses, according to specialists consulted by Gazeta do Povo. In their view, the reform could increase the tax burden on businesses, the complexity of the tax system and legal disputes between governments and taxpayers. In addition, they say, the proposed rules do not guarantee the expansion of productive investment and may discourage businesses from expanding.
In search of a text that meets the different interests – of companies, states and municipalities – MEP Celso Sabino (PSDB-PA), rapporteur for the proposal, has already presented four different opinions. And now prepare the fifth. In the absence of agreement, the President of the House, Arthur Lira (PP-AL), has already postponed the vote on the project twice.
In the current scenario, Ativa Investimentos chief economist Étore Sanchez points out that the chances of the reform going as it is are virtually nil. A thermometer for this are the amendments promoted by the rapporteur. “The unpredictability is great and this is helping to affect the outlook for growth.”
Economy Minister Paulo Guedes admitted he would rather reject tax reform than worsen the system. Last Friday (20), he told the newspaper Valor Econômico that the tax base is growing and it is time to lower rates.
Check out the five threats to business that experts see in tax reform:
1. More tax pressure for some companies
According to Cintia Meyer, partner and specialist in tax law, corporate law and mergers and acquisitions at Martinelli Advogados, the government’s idea of levying a tax on dividends – a part of the profit distributed to the company’s partners – will increase the total taxation of companies and their partners.
Today, corporate profits are taxed only on legal persons. The government’s idea is to reduce the corporate income tax rate (IRPJ) and, at the same time, start charging 20% of what is distributed to partners – dividends, which are currently exempt. It is in the sum of these components that the total weight of taxes can increase.
“For every 100 BRL of wealth generated, the partner already indirectly pays 34 BRL, receiving only 66 BRL. With that, taxing those 66 BRL in an additional 20% would mean a total burden of around 47%, which if it is reveals unreasonable, ”says the lawyer.
Even with Sabino’s surrogate, the total burden on business would drop to 37%, implying an increase in the tax cost of small businesses, which she says generate less revenue and tend to distribute all of their profits.
However, most small businesses tend to get out of this new dividend tax. The amendments made by the rapporteur of the proposal exempt from tax associates of companies classified as simple as well as those falling under the presumed profit regime and charge up to R $ 4.8 million per year.
According to Cintia Meyer, the tax burden of large companies can go down, as long as they distribute less than 62.5% of the profits. “This is because profits reinvested or invested in reserves are not taxed, that is, they will not be subject to additional taxation of 20%.”
High growth, low profit and dividend segments should benefit from lower IRPJ. This is the case with companies in the technology segment and small and medium-sized enterprises that have recently gone public with an IPO.
Another change, the end of interest on equity (PCE) will primarily affect companies in segments such as finance, telecommunications, power and consumer. “Several of them could have a significant impact on profits, which would be partially offset by a possible drop in the IRPJ”, underline, in a report, the strategists of XP Investimentos Fernando Ferreira and Jennie Li.
They point out that one way for companies to reduce the impact of ending interest on equity would be to increase leverage, so that increasing interest payments on debt would reduce taxable income. “However, this would increase the risk for businesses.”
According to the accounts of the National Confederation of Industry (CNI), the reform brings the average tax burden of companies, which currently stands at 34%, to at least 39.2%. And it can reach 40.4% if the condition for reducing the social contribution on net income (CSLL) does not materialize.
If this summit is confirmed, believes tax expert José Messias Teodoro, there is already a loser: the consumer. He believes that the increase in taxation will affect prices.
2. Does not simplify the tax system
One of the main problems with the Brazilian tax system is its complexity. It is the seventh that creates the most difficulties for companies, according to the Doing Business report of the World Bank. According to this survey, filing taxes in Somalia, Venezuela, Chad, Central African Republic, Bolivia and the Republic of Congo is all the more complicated.
The proposal that is being discussed in the Chamber is not going to be simplified, says researcher Juliana Damasceno, of the Brazilian Institute of Economics of the Getulio Vargas Foundation (Ibre / FGV). “And it guarantees the maintenance of heavy structures in the areas of compliance and corporate taxation,” he adds.
What is happening, according to Douglas Mota, partner at Demarest Advogados, is an increase in the tax burden through his reallocation. What is needed, in his opinion, in addition to reducing complexity, is to promote equalization.
3. Does not guarantee the resumption of investments
In addition to offsetting the loss of income caused by other aspects of income tax reform, the French-inspired dividend tax proposal aims to ensure that companies direct more resources towards productive investment, which in Brazil is low.
In fact, the greater the profit reinvested in the company, the lower the fraction distributed to the partners – and the lower the tax which will be levied on them.
Last year, the investment rate was 16.43% of GDP, according to the Brazilian Institute of Geography and Statistics (IBGE). The ideal would be that it is higher than 20%, specifies the Institute of Applied Economic Research (Ipea).
But experts believe that dividend taxation itself does not have the power to increase investment. “The back and forth with respect to the IRPJ and the tax on dividends can create a situation which does not encourage the realization of productive investments,” underlines the economic manager of Rico Investimentos, Rachel de Sá.
The Ibre / FGV researcher recalls that other questions, besides taxation, weigh on investments. “This is only part of the story,” he says. She also points out that at some point the investor will want a return on the money invested – a return that will come from dividends, which will be taxed.
Cintia Meyer, of Martinelli Advogados, says the extinction of the equity interest mechanism, as the reform does, means a setback, as its effects are not only related to tax collection, but also to economic effects. in the capital market. “Certainly, industries will be more affected, because it is companies that require a larger volume of investment.”
4. Does not encourage business growth
Another problem raised by the Ibre / FGV researcher is that, as conceived, the taxation of dividends discourages growth by encouraging the proliferation of small businesses – whose associates, in general, will not pay any taxes. tax on their share of the profits.
“[A reforma] it affects the market by reducing the attractiveness of companies that pay a lot of dividends, ”explains Eduardo Natal, specialist in company law at Natal & Mansur. This should prompt many companies to use tax planning mechanisms to manage their attractiveness.
According to XP Investimentos, low growth companies that pay high dividends would be the most affected by the changes in tax laws. This mainly concerns electricity, sanitation and telecommunications companies.
5. Risk of increased disputes between the government and the taxpayer
Another possibility, pointed out by Teodoro, is the increase in tax disputes. In 2019, disputes between taxpayers and governments affected BRL 5.44 trillion, or 75% of GDP, according to Insper’s Center for Fiscal Studies (NET).
“There is a lot to clarify, the wording of the proposal was very truncated. And as long as there is no definition in the text, we don’t know what the companies are going to do, ”he says.