Ministry of Finance makes first assessments on Income Tax reform – 03/17/2023 – What tax is this

Ministry of Finance makes first assessments on Income Tax reform – 03/17/2023 – What tax is this

Three members of the Ministry of Finance’s Extraordinary Secretariat for Tax Reform made this Friday (17) assessments of the proposed Income Tax reform under construction by the government.

During a debate held by Insper on income and property taxation, Secretary Bernard Appy confirmed that the project already approved by the Chamber in 2022 will be set aside. The government will deliver a new text to be considered by Congress. Probably in the second half.

The proposal will have a similarity with the project of former Minister Paulo Guedes: to tax dividends received by individual shareholders, which will be offset by reducing the IRPJ/CSLL rate charged to companies.

The government is also studying changing the taxation of financial investments, according to Daniel Loria, director of the Extraordinary Secretariat for Tax Reform and member of the Nucleus for Research in Taxation at Insper.

He and Appy listed five principles of the new proposal: progressivity, isonomy, neutrality, international competitiveness and legal certainty.

Loria said that there is no consensus model in the world on income taxation, but cited two examples. The integration model, with taxation of the dividend by the progressive table with some mechanism that provides relief from double taxation. It is a more complex system because of the abatement mechanism, but more progressive.

The model with a fixed dividend rate is simpler, but gives less prestige to equity. “I personally think having some dividend progressivity would be more appropriate, but it’s a topic for study,” he said.

He also said that dividends cannot be overburdened in relation to capital taxation. In his example, there should not be taxation of 30% on dividends and 20% on interest, but uniform taxation.

“In this first semester our work is more focused on building a project within the Ministry, not just within the secretariat. The idea is that in the second semester this proposal will be ready to be taken to Parliament. If the Chamber has already approved the reform of the consumption, a discussion of income can be initiated at the beginning of the second half”, he said.


Rodrigo Orair, director of the extraordinary secretariat and researcher at Ipea, stated that the mission of the two (he and Loria) is to provide technical subsidies to support the two reforms, consumption and income tax.

When talking about the taxation of dividends, he said that Brazil needs to take advantage of the international movement to increase the rate on profits and dividends and reduce the taxation of the IRPJ.

Brazil has a corporate tax rate of 34%, one of the highest in the world, but deduction mechanisms of 7 percentage points, also outside the international standard.

In Simples companies, the average rate is 6.1%. In presumed profit, 20%. In real profit, from 23% to 29%. As a result, Brazilian companies are taxed on average at 23%.

Orair also stated that, if it is true that almost no one exempts the dividend, it is also true that no one puts a dividend on the progressive table without any compensation. And he highlighted that our model has nothing to do with Estonia and Latvia, which do not collect IRPJ at the company level until it is distributed to the partner or shareholder.

“Sooner or later, the Income Tax will have to be reformed. With this international movement, this is imperative. This model [atual] does not meet criteria of efficiency or equity,” he said.

At the end of the event, Orair said that the data and observations presented did not represent a position of the government or the secretariat. “That’s what I worked for at Ipea. It has nothing to do with the secretariat. For now.”

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