Taxation of dividends will have a new government proposal – 03/17/2023 – Market

The federal government will send a new proposal to reform the Income Tax to Congress, which should provide for taxation of dividends offset by the reduction of corporate tax, discarding the possibility of using the project on the subject that is currently in the Senate, he said this Friday. fair (17) the Extraordinary Secretary for Tax Reform, Bernard Appy.

During a debate held by Insper on income and property taxation, Appy and Daniel Loria, director of the Ministry of Finance’s Extraordinary Secretariat for Tax Reform, listed five principles of the new proposal: progressivity, isonomy, neutrality, international competitiveness and legal certainty.

The two stressed several times that the government’s proposal is not ready, but that there is “a reasonable possibility” of having a new project that deals with the taxation of dividends on individuals with a reduction in taxes on legal entities (IRPJ/CSLL).

“In principle, the idea is to draw up a new Income Tax project to send to Congress in the second semester. The project that is in the Senate today [já aprovado na Câmara] has many problems and is not a good basis to move forward with the debate,” said Appy,

“There is no government decision on this, but it is a likely scenario, based on what we have spoken with the president. [Lula]move towards the taxation of dividends and reduce the corporate rate”, said Loria, who is working on this proposal within the ministry.

They point out that there is no ideal model for income taxation in the international literature and that there are large differences in the rules adopted in each country. In consumption taxation, on the other hand, the taxation format through a value-added tax is already established.

“If it is possible to have a fairer, more progressive system that does not harm efficiency, we should seek this model. Designs that were thought of for Brazil 30 years ago may not be ideal today”, said Appy.

“Brazil has a series of distortions to correct and that deviate from this parameter, which mean that a relevant portion of high-income people is less taxed.”

Regarding the principle of isonomy, Loria cited as an example the difference in taxation of income from renting real estate, which can reach 27.5% for individuals, but is 11% when the asset is transferred to a legal entity and zero in real estate funds.

The two also mentioned the issue of international competitiveness, stating that nothing that is done in Brazil can be seen in isolation, recalling the discussions at the OECD on minimum corporate tax.

“The challenge is how to come up with a system that is as efficient from an economic point of view, as fair as possible, that raises money and, at the same time, deals with this international competition,” said Appy.

Patrimony

Regarding assets, the secretary expressed support for changes that are currently in the PEC 110 report, which serves as the basis for the reform of taxes on consumption, and which deal with IPTU, IPVA and ITCMD. He stated that the secretariat’s agenda also includes some measures at the infraconstitutional level in the taxation of assets that will be made public at the appropriate time.

The columnist of Sheet Samuel Pessôa, researcher at the Brazilian Institute of Economics at FGV and executive at the Julius Baer Family Office, said he saw more obstacles to the approval of the IR reform than the proposed change in consumption taxation, citing the almost unanimity of Congress in defending protections to Simples Nacional. He also stated that, in Brazil, everyone thinks they are middle class and that they already pay a lot of taxes.

Vanessa Canado, coordinator of Insper’s Taxation Research Center, and Leonel Pessôa, organizer of the book “Quality of Tax Expenditures in Brazil: Simples Nacional”, stated that the proposals for reforming taxes on consumption and income can help resolve the question of the distortions created by the special regimes, which also include the presumed profit.

“We need to make the system simple so that Simples is unnecessary”, said Canado, who foresees a voluntary migration of companies when the consumption reform system is implemented.