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Correio newspaper | Tax for millionaires has a potential of R$40 billion per year, but should generate R$20 billion

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MINIMUM TAX

Tax for millionaires has a potential of R$40 billion per year, but should generate R$20 billion

Understand the impacts of tax change

  • Photo by the author Estadão

Published on October 26, 2024 at 10:18 am

Money

Money Credit: Marcello Casal Jr/Agência Brasil

The creation of a minimum tax for millionaires in Brazil, with an effective rate of 12%, has the potential to increase government revenue by around R$40 billion per year, but should in fact generate something close to R$20 billion in reason for tax planning. The amount would be insufficient to replace the loss of at least R$45 billion with President Luiz Inácio Lula da Silva’s campaign promise to exempt income tax for those earning up to R$5,000. The calculations are from Santander Brasil economist Ítalo Franca obtained by Broadcast (Grupo Estado’s real-time news system) and were made based on data from the 2022 personal income tax declaration, with base year 2021. They are more than 250 thousand taxpayers earning more than R$1 million according to the survey.

Franca explains that, just from the perspective of taxing millionaires, the compensation proposal is limited, as individuals can change their tax plans to reduce the effects of the new tax. “People will make other types of decisions (with a new tax rule). Eventually, if you tax more, this will probably reduce the amount of dividends. So, I think there will have to be a balance”, he assessed.

The fiscal impact of expanding the IR exemption stresses the market, which fears that the government will leave loose ends in a broad income reform, putting neutrality at risk. The economic team has already gotten the message. Minister Fernando Haddad said he is bringing technical alternatives to Lula, with no deadline for submission to Congress, which could be 2025. With some of the technicians focused on the new consumption tax system, income is on hold. Technicians assess that the change to the new VAT is more revolutionary and requires monitoring, while, for income, the political discussion weighs more.

Considering debates that have been discussed by the economic team, the Santander economist also carried out other scenario simulations. The IR exemption for those earning up to R$5,000, for example, could generate an impact of between R$40 and R$45 billion, considering current taxpayer data and the forecast of a minimum wage of R$1,509 in the year he comes. However, the value can reach from R$100 billion to up to R$120 billion if a complete design is made, that is, in which the first billing range would start from R$5,000.

Regarding ways to compensate for this fiscal loss, the economist considers that it will be necessary to evaluate the parameters discussed by the government. If, for example, an income bracket was created charging 30% to 35% for those earning above R$35,000, the government would be able to collect something between R$10 and R$15 billion, a third of the loss of R$ $45 billion in relief. Another point would be to propose limitations on the deduction of health expenses, a debate that has already been raised in previous administrations.

In any case, Franca believes that an income reform should be discussed broadly, with all points “tied up”, to avoid noise and uncertainty about how to compensate for lost revenue. “In all estimates, you look a lot at the picture. People will make other types of decisions. I think there has to be a slightly broader reform to connect all the dots, gain efficiencies. Just like with payroll tax relief, We have doubts as to whether the compensation is permanent. And that is what creates this fiscal uncertainty”, he assessed.

The chief economist at MB Associados, Sérgio Vale, assesses that the fairest scenario would be to increase the tax on the richest portion and not affect the lower income portion in order to help with fiscal adjustment. According to him, the government is trying to promote a neutral proposal, but that is not appropriate at the moment given the level of fiscal imbalance.

“It’s still not clear how the government actually wants to do it, but, by being more populist, it ends up having a better chance of approval in Congress. Unfortunately, it doesn’t help to calm tempers,” he told Broadcast. He reiterated that the government needs to be convinced that the limit in increasing revenue has already been reached.

The chief economist at ARX Investimentos and former director of the Independent Fiscal Institution (IFI), a body linked to the Federal Senate, Gabriel Barros, assesses that, amid the regulation of the reform on consumption, progress on income taxation could negatively influence the dynamics of the former and limit the revenue gain that the government seeks, producing side effects on the sustainability of the fiscal framework. “Without hundreds of billions in revenue every year, the fiscal rule doesn’t stand,” he told Broadcast.

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Michelle Williams

I'm Michelle Williams, an enthusiastic author specializing in captivating entertainment content on Rwcglobally.com. With a passion for storytelling and a keen eye for the latest trends, I aim to engage readers with compelling narratives that reflect the dynamic landscape of the entertainment industry. Join me on Rwcglobally.com to explore the world of film, television, music, and more, as we uncover the stories that define contemporary culture.

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