Reform will bring big changes to personal income tax

One of the four stages of the government’s tax reform, Bill (PL) 2337/2021 provides for changes to the income tax (IR) rules for 2022. The text, which is currently being drafted urgent examination in the hemicycle and must be voted on in plenary in the coming days, it received a deputy of the rapporteur, the deputy Celso Sabino (PSDB-PA), who however hardly changed the proposal of the Executive concerning the Personal Income Tax (IRPF).

With this, the suggestions of the team of the Minister of Economy Paulo Guedes remain, which, in general, update the IRPF table, but, on the other hand, restrict the possibility of using the so-called simplified discount.

Among the main changes for individuals is the increase in the tax exemption range from the current R $ 1,903.99 to R $ 2.5,000. According to the Ministry of the Economy, 31 million Brazilians now declare IRPF, of which 10.7 million are exempt. With the update of the table, an additional 5.6 million will no longer pay the tax, bringing the total exempted to 16.3 million.

Current range Proposed range Rate Up to 1,903.98 BRL Up to 2.5 thousand BRL 0% BRL 1,903.99 to BRL 2,826.65 BRL 2,500.01 BRL to 3.2 thousand BRL 7.5% BRL 2,826.66 to 3,751.05 BRL 3,200.01 BRL to 4,250.01% BRL 3,751.06 to 4,664.01 BRL 5.3 thousand BRL 22.5% Above 4,664.68 BRLAu over 5.3 thousand BRL 27.5%

On the other hand, the government is proposing a limitation on the simplified remittance, which is 20%, only for those who receive up to R $ 40,000 per year. Today, any taxpayer who pays the IRPF can opt, at the time of the annual adjustment declaration, for the option, which reduces the amount of taxable income up to R $ 16,754.34.

If the change is approved, those earning more than the proposed limit – equivalent to around R $ 3,300 per month – will necessarily have to make a full declaration, which allows only expenses to be deducted with dependents, health, education and social security. The change is expected to increase the tax burden on many middle-class taxpayers, however, since the update of the rate table by salary scale will not offset the increase in the IRPF with the end of the 20% discount. It is estimated that around 2 million taxpayers are in this situation.

The Public Leadership Center (CLP) has created a calculator to simulate how personal taxation should be if the reform is approved.

Dividends will be taxed at 20%, but there are exceptions

Another change for individuals will be the taxation of profits and dividends distributed at 20%. The government has proposed a range of exemptions for those who receive up to R $ 20,000 per month from micro and small businesses (up to R $ 4.8 million in annual income) – taxation, in these cases , would only apply to the amount that exceeds R $ 20. thousand. In the substitute, Sabino has also included an exception for the distribution, without limit of value, for all Simple companies.

The text also provides for changes in tax rates for investments in bond funds, open and closed (multi-market). The declining table is extinguished, according to which applicable rates ranging from 22.5% to 15% depending on the buyback period. The proposal is for a fixed charge of 15%.

Stock exchange transactions will also have a rate of 15%, with quarterly calculation, for all markets, if the text is approved. Today, the calculation is monthly, with a rate of 15% on spot, forward, options and futures markets, and 20% for daily transactions and shares of real estate investment funds (FII).

The distribution of income from FIIs, which the government has even proposed to tax at 15%, will remain exempt. After being harshly criticized by investors and the real estate sector, the rapporteur decided to withdraw the forecast in his deputy.

There will also be a change in the tax levied on updating the net values ​​of real estate located in the country. Information on the new value can be made annually, with a reduced rate of 4%.

Currently, the value is maintained as long as the property is held, and the update is only made at the time of sale, with a rate of 15% to 22.5% on the capital gain.

How the changes are expected to affect government accounts

According to MP Celso Sabino, the loss of revenue for the government with the update of the proposed table, for 2023, is 25.15 billion reais. With the simplified haircut restriction, the impact would be reduced by R $ 10.69 billion, resulting in a net loss of R $ 14.46 billion.

A study by the Itaú macroeconomic research department, signed by economists Claudia Bruschi and Pedro Schneider, estimates that updating the IRPF table could reduce government revenue by around R $ 23 billion, but, on the other hand, increase consumption to R $ 20 billion, which would reduce the loss of income by R $ 6 billion.

“The potential increase would be greater in income brackets ranging from 3 to 6 minimum wage and would tend to benefit more from the demand for services and automobiles, which have greater income elasticity in these positions,” the authors explain. of the report.

They believe that the taxation of dividends can help reduce the phenomenon of “pejotization”, in which individuals begin to receive a significant portion of their labor compensation through tax-exempt dividends, instead of wages, imposed on the labor market. source. According to Federal Revenue data, from 2007 to 2019, the number of people who reported receiving dividends increased from 1 million to 3.6 million. In the same period, declared values ​​increased from 3.5% to 6.4% of GDP.

“The measure contributes to improving the progressivity of the tax burden, given that for these people [que recebem lucros e dividendos], the effective rate of the IRPF, ie the amount of tax they paid in proportion to their total income, is considerably lower, ”indicates the Itaú study.

In a technical note, the Intersyndical Department of Statistics and Socio-Economic Studies (Dieese) considers, however, that the exemption of profits and dividends distributed by micro and small enterprises up to R $ 20,000 per month continues to hire workers such as legal persons, to the detriment of recourse to labor law.

The proposal is still subject to change

On the verge of being voted on in the Plenary Assembly, PL 2337/2021 is still subject to modifications by way of amendments. The text, if approved, will always be dealt with in the Senate, where it can also be amended.

Until Friday (6), three amendments tabled by lawmakers suggest changes in the government’s proposal for individuals. Leo de Brito (PT-AC) proposes to expand the IRPF exemption range for monthly income up to R $ 5.5,000, while Deputy Second Lieutenant Gonzaga (PDT-MG) has proposed to maintain the simplified reduction option for all taxpayers.

Marcelo Ramos (PL-AM) proposes that profits and dividends paid or credited by legal persons providing services that have opted for taxation based on presumed profits should not be subject to withholding tax and are not included in the IRPF calculation base.

The increase in the tax exemption for income up to R $ 5,000 per month was a campaign pledge by President Jair Bolsonaro (no party) in 2018. Minister Paulo Guedes, however, said he did not was not possible to reach this level.

The IRPF table has not been readjusted since 2015. According to calculations by the Union of Federal Tax Auditors (Sindifisco), the shift in the rate brackets has been 113.09% since 1996. Since then, inflation cumulative would have been 346.69%, while the corrections total 109.63%. According to these figures, if corrections had been made for high inflation, taxpayers with salaries below R $ 4,022.89 would be exempt.

The study by the Department of Macroeconomic Research of Itaú indicates that it would be possible to increase the exemption bracket, provided, in return, that new brackets are created for higher incomes. With tax relief for those earning up to R $ 3,300 and a tax of 32.5% and 35% for income over R $ 7,000 and R $ 9,000, the fiscal impact would be neutral , according to the calculations of the bank team.

“The lower taxes for low-income groups, who have a lower savings rate, would be offset by the increase for high-income groups, which have a high savings rate. The increase in the maximum rate would bring the country closer to the international standard, ”explain the economists.

In OECD countries, the maximum income tax rate is levied on incomes above the average wage by 356%, which would be equivalent to R $ 8,884 in Brazil. In the Brazilian tax system, the widest range corresponds to R $ 4,664.68, or 212% of average income.

Analysts are also suggesting alternatives to limiting the simplified reporting. One of the possibilities mentioned is to maintain the current conditions, without restriction of income, and to make taxation more progressive, “bringing a gain to economic activity without harming the tax adjustment”.

Another option would be to revise the tax deduction rules. They point out that the discounts are very concentrated and used mainly by the wealthier part of the population.

Studies from the Ministry of the Economy show that in the case of health, whose deduction is currently unlimited, 82% of the R $ 18 billion in tax exemptions go to the richest 1% of the population, while 79% of the R $ 4 billion in exemptions with education fees, whose deduction is currently limited to R $ 3,652, go to the richest 20%.

“In other words, designs that focus these deductions on the poorest part could see their earnings used to maintain a more comprehensive tax reporting modality – which is welcome in Brazil, which according to World Bank statistics , is the country where the most time is spent managing tax payments.

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