Brazil’s finance ministry is proposing an income tax reform aimed at taxing shareholders of firms with below-average tax rates while raising the income tax exemption for those earning up to 5,000 reais monthly. The reform intends to preserve fiscal neutrality but faces skepticism from markets regarding revenue implications and its ability to balance the tax system.
Brazil’s executive secretary of finance, Dario Durigan, announced that a forthcoming income tax reform targets shareholders receiving dividends from companies taxed significantly below the national average. Speaking at an American Chamber of Commerce event, Durigan highlighted that the legislative proposal is designed to be fiscally neutral, even as it raises concerns about potentially ending the current tax-exempt status of corporate dividends, which alleviate some of the tax burdens faced by companies in Brazil.
The central feature of this reform, revealed last year amidst market volatility, is the increase in the income tax exemption threshold for Brazilians earning up to 5,000 reais ($875.84) monthly. Currently, the exemption applies up to two minimum wages or 2,824 reais, benefitting an additional 10 million individuals and totaling 26 million exempt from income tax. This adjustment aims to enhance President Luiz Inacio Lula da Silva’s popularity, following recent declines in approval ratings.
Despite these changes, markets express skepticism due to the considerable revenue impact and the challenge of achieving fiscal neutrality. Durigan stressed that a compensatory measure would involve instituting a minimum tax rate of 10% for high-income earners, affecting about 160,000 taxpayers. Last year, the government acknowledged that these reforms might not entirely cover revenue shortfalls and may also retract tax exemptions for certain retirees earning above 20,000 reais, among other unspecified measures.
In summary, Brazil’s proposed tax reform aims to create a more equitable taxation system, focusing on higher-income shareholders and exempting low-income individuals from tax. The government is seeking to maintain fiscal neutrality while addressing public concerns about corporate taxation. However, skepticism remains among market stakeholders regarding its implementation and sustainability.
Original Source: money.usnews.com
