IR: Parliamentarians propose greater correction of the table – 05/28/2023 – Market

The provisional measure that corrects the Income Tax table and changes the taxation of investments abroad received 106 amendments, which are proposals from deputies and senators to change the text sent to Congress by President Luiz Inácio Lula da Silva (PT) in April this year.

About ten amendments call for a greater correction of the IR table, with the level of exemption changing from the R$ 2,112 proposed by the government to up to R$ 5,280 (four minimum wages). The president promised to increase the exemption to R$5,000 by the end of his term, gradually.

Regarding investments abroad, a survey carried out by the specialist in commercial, contractual and tax law at Saint Joseph Law, João Pedro Volz, shows that most of the suggestions deal with changing the rates to be charged, definitions of taxable assets, deductions and treatment of the exchange variation.

There are also proposals that are not directly related to the subject of the MP, what is called “jabuti” in the parliamentary jargon, such as the reopening of the program for the regularization of assets abroad, updating of property values ​​in Brazil and the institution of a tax about great fortunes.

The tax expert points out that the leader of the opposition, deputy Carlos Jordy (PL-RJ), proposes to completely reject the part of the MP that deals with investments abroad, maintaining only the correction in the IRPF table.

“This leads us to conclude that a good part of Congress can, along with it, vote to eliminate the MP almost completely.”

Volz claims that the issue of “trusts”, which represents a third of the text of the MP, was not mentioned in any proposed amendment. Brazil currently does not have clear rules on the taxation of trusts, which are widely used as mechanisms for investment and transmission of assets.

The purpose of taxation of assets abroad is to compensate for part of the loss of income resulting from the correction of the table. The MP has the force of law, but it needs to be voted on within 120 days after its edition so as not to lose its validity.

According to the Ministry of Finance, financial investments in Brazil are subject to higher taxation than those made abroad. In addition, more than R$ 1 trillion in assets outside the country pay practically nothing to IRPF. Sometimes through structures in tax havens.

The MP establishes exemption for the portion of income of up to R$ 6,000 per year; 15% for the installment above this level up to R$ 50,000 per year; and 22.5% for the portion of earnings above this amount from 2024 onwards. Some amendments suggest an exemption range of R$ 35,000.

Exchange variation is taxed on the return of resources to Brazil, but some parliamentarians reject taxing this portion of the gain, citing the risk of double taxation of resources.

The government also opened the possibility of updating the value of goods abroad, with a reduced tax of 10%. There are proposals in Congress to reduce and raise this percentage.

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See the monthly income tax table from May 2023

Calculation Basis (BRL)	Rate (%)	Portion to be deducted from the IR (BRL)
Up to 2,112.00	zero	zero
From 2,112.01 to 2,826.65	7.5	158.40
From 2,826.66 to 3,751.05	15	370.40
From 3,751.06 to 4,664.68	22.5	651.73
Above 4,664.68	27.5	884.96

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The measures have the potential to collect R$ 3.25 billion for this year, R$ 3.59 billion for 2024 and R$ 6.75 billion for 2025. With the update of the monthly income tax table, the folder estimates a revenue reduction of BRL 3.2 billion in 2023, BRL 5.88 billion next year and BRL 6.27 billion in 2025.