Rapporteur presents substitute for income tax reform

Federal MP Celso Sabino (PSDB-PA) presented on Tuesday (8) the final version of his replacement for Bill (PL) 2337/2021, which deals with changes in income tax (IR). The text makes adjustments from the preliminary advice presented in July, which Sabino says makes approval of the text neutral impact on the collection. The House plenary is expected to vote this afternoon on the demand for an emergency regime for the treatment of the bill.

In a nod to the governors and mayors, the deputy inserted in the new version of his report a trigger for the lowering of the basic rate of corporate tax (IRPJ). According to this provision, the IRPJ will initially be reduced by 7.5 percentage points in the first year, from the current 15% to 7.5%. If the general income tax collection increases more than inflation, that is, if there is a real increase in revenue, there will be a further decrease of 2.5 percentage points.

The measure will be adopted if the amount collected between November 2020 and October 2021 is greater than that collected between November 2018 and October 2019. The dates have been chosen to remove from the basis of comparison the economic effects of the Covid-19 pandemic for the throughout 2020.

In 2023, according to the surrogate, the IRPJ will drop another 2.5 percentage points if the IR collection between November 2021 and October 2022 is greater than the income between November 2018 and October 2019, discounted for inflation.

The IR reform proposal presented to the House by the Minister of the Economy, Paulo Guedes, on June 25, provided for a reduction of just 5 percentage points in the IRPJ rate in two years – 2.5 per first year and another 2.5 the second. .

In a draft of the Sabino report, presented by the MP on July 13, it was suggested to reduce the corporate tax rate by 12.5 percentage points – 10 points in 2022 and 2.5 in 2023 – without any conditioning. .

Another change made by the rapporteur in relation to the government plan was to maintain the exemption for real estate investment funds (FII). The government wanted this type of asset to be taxed at 15%.

Although praised by party leaders and representatives of the productive sector and the financial market, Sabino’s preliminary opinion was harshly criticized by the representative entities of subnational entities, who defended in public notes the complete rejection of the text.

According to calculations by the rapporteur’s own team, the proposed changes would generate a net reduction in collection of around R $ 26.9 billion for 2022 and R $ 30 billion for 2023. The National Committee of State and State Finance Secretaries Federal districts (Comsefaz) and the National Confederation of Municipalities (CNM) argues that the impact would significantly reduce transfers from the State Participation Fund (FPE) and the Municipal Participation Fund (FPM).

Comsefaz estimates that states and municipalities would lose around R $ 27.4 billion per year. The CNM calculated the annual loss that municipalities would have to bear at R $ 13.1 billion.

Last Thursday (29), Sabino met with representatives from Comsefaz and said the adjustments he intends to make to the replacement will ensure that state revenues are maintained. Among the measures would include the inclusion of triggers to reduce IRPJ.

Despite this, after the presentation of the new version of the surrogate, the organization issued a new open letter on Tuesday calling for disapproval of the bill, saying the triggers do not mitigate the damage to state budgets. .

The tax burden, according to Comsefaz, is referenced by the gross domestic product (GDP) and not by the price index, which means that an increase in collection greater than inflation does not represent an increase in the burden if the economy is growing.

Speaking at a press conference this afternoon, Sabino said the organization is not considering any other replacement changes, which he says will have a neutral impact on the collection.

The substitute provides tax exemptions on profits and dividends

The proposal to tax dividends at 20% has been maintained in the substitute, with an exemption range of up to R $ 20,000 per month for micro and small businesses. The rapporteur, however, made a few exceptions.

Pension funds and pension funds, for example, will not have to pay income tax on dividends received. The profits and dividends of Simples Nacional companies will also be exempt from tax. Nor will tax be levied on distributions to affiliates, in addition to those controlled by the same economic group, for example.

The directors and officers of the company may receive compensation in shares, which can be deducted from the basis for calculating the company’s operating profit, provided that this compensation is subject to charges already taken from the payroll.

According to Sabino, the measures will generate a reduction in the tax burden of R $ 100 billion for all businesses in the country. “All, 100% of the companies that are in the actual, deemed and arbitrated profit will have a reduction in the tax burden with the reduction in the IRPJ rate,” he said.

When considering taxes on legal and natural persons, the MP states that all micro, small and medium entrepreneurs will also pay less taxes. “There are exceptions for the large distribution of dividends; people who receive R $ 200,000, R $ 600,000 per month. In these cases, the effective rate may increase, in some cases, from 6% to 9%, from 8% to 10%. “

Taxpayers who take advantage of assets abroad will be able to discount the amount at the rate of 6% in 2022, suggests Sabino

For the year 2022, the deputy proposes the possibility that taxpayers who have foreign assets declared to Federal Revenue and the Central Bank and who have generated profits can discount this income by paying a reduced rate of 6% . “Of all countries, not just tax havens,” he said.

“When he liquidates this profit, he will have the advantage of having already discounted the book value to the real value,” he explains. The update will be optional, but it is seen as a way to encourage the taxpayer. The measure, according to Sabino, should ensure a balanced budget in the first year of validity of the new IR rules, when the collection with the other fronts will still not be satisfactory.

According to calculations by the Ministry of the Economy, for 2022, a collection of 14 billion reais is expected from the tax on profits and dividends. In 2023, this source should already generate 40 billion reais, and in 2024, 56 billion reais.

The PEC that will be processed together will provide for changes in CFEM and ICMS

Other innovations in the replacement of Sabino include further changes in the rules of Financial Compensation for the Exploitation of Mineral Resources (CFEM).

For this it will be necessary to approve a Constitutional Amendment Proposal (PEC), which will be dealt with in conjunction with PL 2337/2021 and also provides for changes in the distribution of the ICMS to municipalities. Measures have also been suggested to compensate the cash flow of subnational entities.

Today, around 10% of what is collected from the CFEM remains with the Union, while the rest is distributed between states and municipalities. The idea is that the resources that currently correspond to the federal budget are also distributed to other entities.

The collection of contributions and the control of the payment of these resources would pass to the secretariats of state finances. The National Mining Agency (ANM), which is now responsible, would be responsible for regulating the sector and authorizing exploration and research in the area.

In addition, the CFEM rate on ore, which is 4%, would increase to 5.5%. Sabino considers the proposal fair, as large mining companies operating in Brazil have posted high profits and will also benefit from the IRPJ rate cut.

Regarding the ICMS, which is collected by the States and 25% of which is distributed to town halls, the PEC provides for changes in the transfer criteria. Currently 65% ​​of the share that is shared is distributed in proportion to the wealth produced by the municipalities. The remaining 35% is distributed according to state law, which usually takes into account indicators such as population or the HDI.

“We are proposing that this constitutional percentage of 65% be increased to 40%, and what was 35%, which state law will define, be increased to 60%,” says Sabino. “It happens in many states that municipalities which produce a lot of wealth, in addition to receiving a lot of financial compensation, also receive a lot of ICMS”, he explains.

The rapporteur maintains the government’s proposal for the IRPF

The changes the government proposed to the Personal Income Tax (IRPF) were maintained by Sabino. The project updates the rate table, increasing the exemption range from R $ 1,903.98 to R $ 2.5,000 per month.

On the other hand, the 20% simplified tax reduction is now limited to those who receive up to R $ 40,000 per year (just over R $ 3,000 per month).

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