The government’s proposal to tax profits and dividends and put an end to Interest on Own Capital (JCP), a way for companies to remunerate their investors by paying less income tax, displeased businessmen and generated criticism within the economic team itself, according to the Estadão/Broadcast.
The assessment is that the reduction in IRPJ rates will not be enough to offset the increase on other fronts and the combination of changes will have the effect of a greater tax burden for the productive sector. Members of the government itself assessed the proposal as “terrible” and pointed out complaints of favoring the financial sector at the expense of companies. An onslaught by businessmen for changes in Congress is already taken for granted.
Law firms pored over the details and also talk about increasing the load, from the current 34% to 49%. It would be 20% on profits and dividends, 20% on IRPJ (after the gradual reduction of the rate, today at 25%) and 9% on Social Contribution on Net Income (CSLL), which remains the same.
In one wing of the financial market, the criticism is that the government increased taxation on companies and investments to pay for the benefits promised by President Jair Bolsonaro to workers in the Income Tax of Individuals (IRPF). The final design of the proposal has also been targeted by the National Congress. Former president of the Chamber Rodrigo Maia (without party-RJ) says that the proposal greatly increases the burden of companies taxed on real profit. “A rate of 49% is not enough”, he says.
The government proposed to tax profits and dividends at 20%, with an exemption of up to R$20,000 per month for micro and small businesses – special treatment included at Bolsonaro’s request. Brazil has not taxed profits and dividends since 1996.
“The exemption of profits and dividends had been generating distortions in relation to labor income and encouraging the so-called ‘pejotization’”, explained the special secretary of the Federal Revenue, José Tostes. The “pejotização” is the practice of self-employed professionals with high earnings to pay less tax as a legal entity. In 2019, R$ 479 billion in profits and dividends distributed to individuals were declared, according to data from the Revenue. No penny was taxed.
The Ministry of Economy also wants the end of the JCP, used by publicly traded companies (with shares on the stock exchange) to distribute profits. Economist Isaías Coelho, special advisor to the portfolio for tax reform, said that the JCP, created at a time of greater difficulty for companies to access credit, had little result. “Practice has shown that the JCP is a tax sacrifice without counterpart in economic activity.”
To ease the pockets of companies, the government counterbalanced it with a gradual reduction in the IRPJ, currently at 25%. The rate would rise to 22.5% in 2022 and 20% from 2023 onwards. For critics, however, the account does not close. The government itself informed that it expects to collect R$ 18.5 billion in 2022, R$ 54.9 billion in 2023 and R$ 58.15 billion in 2024 from taxation on profits and dividends, in addition to another R$ 2.75 billion in 2022, BRL 7.18 billion in 2023 and BRL 7.6 billion in 2024 with the end of JCP. The reduction of the IRPJ rates would reduce the collection by R$ 18.52 billion in 2022, R$ 39.2 billion in 2023 and R$ 41.53 billion in 2024.
The president of Unafisco Nacional, Mauro Silva, says that the complaints come mainly from those who “benefited from this tremendous injustice”. “We returned to the normal world, as only Brazil and Estonia did not tax.” (Anne Warth and Eduardo Laguna collaborated)
The information is from the newspaper The State of São Paulo.
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