Government wants to collect more with tax on super-rich and end of tax ‘jabutis’ – 01/04/2023 – Market

After proposing a fiscal framework that ensures the expansion of expenses above inflation in every year, the team of the Minister of Finance, Fernando Haddad, is preparing a comprehensive package of measures to collect more and manage to deliver the promised improvement in public accounts for the coming years years.

The intention is to announce the menu of initiatives at the beginning of next week. The list should include the taxation of exclusive investment funds, aimed at the high income (the super-rich), the taxation of sports betting and the end of legal loopholes used by companies to pay less IRPJ and CSLL —classified by the minister himself as ” tortoises” tributaries.

The increase in revenue is a central pillar for the sustainability of the new fiscal framework presented by Haddad on Thursday (30). The design guarantees a real increase in spending between 0.6% and 2.5% each year.

Despite the expected increase in expenses, the economic team outlined ambitious goals for the mandate and promised to deliver a surplus of 1% of GDP (Gross Domestic Product) in 2026. to raise up to an additional R$150 billion.

According to interlocutors interviewed by the Sheet, the measures should ensure a collection of at least R$ 50 billion this year. The impact cited by the minister, therefore, would be expected in a full year.

One of the actions is the taxation of exclusive investment funds, in which few shareholders maintain expressive amounts in investments. Today, those who invest in these funds collect IR (Income Tax) only when redeeming the resources, which can take years.

The system is different from other funds, which are subject to the so-called “quota-eater”, charged periodically on earnings.

The government’s intention is to start charging “quota eaters” also on exclusive funds.

“That rule [fiscal] will not be an impediment to fulfilling what is agreed by society. Only what was agreed has to be matched by the more affluent sectors,” said the minister during the announcement of the new rule.

In 2017, the Michel Temer (MDB) government issued an MP (provisional measure) to institute the periodic collection of IR on exclusive funds, every six months.

At the time, the estimate was to raise BRL 10.72 billion with the collection of 15% income tax on income accumulated since the creation of the funds until May 31, 2018.

Inventory taxation is the main source of revenue for this measure, but it was also one of the points of greatest resistance in the National Congress. The MP ended up not succeeding and lost its validity without the Executive raising a penny.

Haddad’s team also wants to resolve the impasse surrounding the discussion of whether the ICMS tax benefits granted by states to companies make up the basis for calculating IRPJ and CSLL, two federal taxes.

Incentives can be a reduction in the calculation base, presumed credit (to deduct the amount due), rate cut, exemption, deferral or tax immunity.

From the taxpayer’s perspective, the granting of a tax benefit increases its revenues and increases the company’s profit. But federal legislation allows the exclusion of this value from the tax calculation base when the subsidy is granted to encourage investments, but not for funding (such as operating or personnel expenses).

The law did not go so far as to detail the classification criteria for each type of subsidy, but the Federal Revenue has historically adopted the understanding that the investment subsidy is one that seeks to stimulate the installation or expansion of enterprises.

The interpretation given by the tax authorities, however, began to be questioned by taxpayers in recent years.

In 2017, the National Congress amended the legislation to try to resolve the issue in favor of companies. A device included in complementary law 160 (which sought to put an end to the tax war between states) expressly established that ICMS tax incentives and benefits are considered investment subsidies —that is, free from federal taxation.

The text also prohibited the “requirement of other requirements or conditions” for the recognition of the benefit of the exemption, muffling the performance of the Federal Revenue Service.

The change was succeeded by a broad interpretation given by the STJ (Superior Court of Justice). The court gave the companies a victory by deciding that presumed ICMS credits, whether for funding or for investment, do not make up the IRPJ and CSLL calculation base.

The ruling hurt federal revenues and emboldened taxpayers to seek an even bigger exemption. Companies began to adopt the understanding that all tax incentives should be excluded from the IRPJ and CSLL calculation base, including any difference due to ICMS rate cuts in the states.

On the 26th of April, the issue will again be judged by the STJ, which will decide whether the interpretation on presumed credits, favorable to companies, can also be applied to other types of tax benefit.

According to interlocutors, Haddad has expressed concern about the problem, which contributes to squandering government revenues. The minister bets on a solution and said, during the announcement of the fiscal framework, that he will dialogue with the Judiciary on matters of interest to the Union.

sports betting

Haddad also anticipated that the government wants to tax the electronic sports betting market, with the expectation of raising up to BRL 6 billion. The Ministry of Finance is still evaluating the tax rate to be charged.

In an interview with Sheet in March, the Secretary of Economic Reforms at the Ministry of Finance, Marcos Barbosa Pinto, said that the government is still calibrating estimates of potential revenues from the measure.

“It is an activity that is not taxed today. We do not have precise numbers of what is happening in the world, and much of it is illegal. So, it is difficult to estimate. It is easier to estimate when you already have revenue and it is increasing the rate,” he said.

According to him, the best international experiences point to taxing companies, leaving residual taxation for the gambler. The secretary also points out that the activity deals with a series of negative externalities, such as addiction and money laundering.

“What we need to find is the optimal level of taxation, the level that makes the activity possible here and it remains illegal through websites around the world, but also that collects the maximum possible, enough to compensate for the externalities that are being imposed here in the country”, he said.

“We need to regulate and tax because this negative externality is having an impact on the Brazilian economy,” he added.

The activity has been provided for by law since 2018, but, according to the Treasury, the lack of regulation on how the law should be applied left the sector without clear rules to be complied with and without taxation.

Last month, Haddad stated that, with the taxation of the electronic betting market, the government intends to compensate for the loss of revenue by updating the exemption range of the IRPF (Individual Income Tax) table.

“Let’s regulate [os jogos da internet]. We readjusted the IR table and this has a small loss of revenue, but it does. We are going to compensate with the taxation on these electronic games that do not pay any tax and take a fortune of money from the country”, said the minister in an interview with UOL.

The head of the Treasury met on March 14 with representatives of gaming and lottery companies, including companies such as Betano, BetNacional and GaleraBet.