By 398 votes to 77, the Chamber of Deputies approved this Wednesday (1) the basic text of the reform of the Income Tax (IR) of individuals, companies and investments.
The session was closed before the analysis of the so-called highlights (suggestions for changing the matter), which can be voted on this Thursday (2). Approved in the Chamber, the matter will go to the Senate.
Until the beginning of this Wednesday afternoon, the president of the Chamber, Arthur Lira (PP-AL), said that he was “ending some conversations” to make the vote feasible. The vote took place after an agreement between government and opposition lawmakers.
The rapporteur of the matter, deputy Celso Sabino (PSDB-PA), responded to demands from deputies to reach a consensus — such as the removal of the income limit for those who can file a simplified declaration of income tax.
The bill was sent by the government to Congress in June as part of the tax reform. For individuals, the main changes are the readjustment of the income tax table and the expansion of the exemption range.
Changes in corporate income tax
The rapporteur presented five versions of his opinion. In the last one, filed on Wednesday (1), Sabino predicted a cut of seven percentage points (from 15% to 8%) in the corporate income tax rate (IRPJ) and a cut of one percentage point in the Social Contribution on Net Income (CSLL). The cut in CSLL is linked to the reduction of tax incentives for specific sectors.
Initially, the deputy planned to cut the IRPJ by 12.5 percentage points and did not foresee changes in the CSLL.
He changed his mind to gather support from governors and mayors, who allege loss of resources with the reform, since companies’ income tax collection is shared with states and municipalities and CSLL is not.
Even with the changes this Wednesday, state finance secretaries calculate losses of R$9.5 billion per year for state and municipal coffers.
The Brazilian Association of Capital Finance Secretariats (Abrasf) maintained the loss estimate of R$ 1.5 billion only for the capitals and largest cities in the country.
According to the Executive’s original proposal, the fiscal impact of the Income Tax reform would be null — that is, there would be no increase or decrease in the tax burden or collection.
The Ministry of Economy, however, did not release estimates on the fiscal impact of the version of the reform approved by the Chamber.
Taxation of profits and dividends
The approved text provides for taxation of 20% of profits and dividends distributed by companies. It is a way to offset the reduction in other taxes.
Dividends have been tax-free in Brazil since 1995. The change is one of the opposition’s banners. However, there is still the expectation that the percentage drops to 15% during the voting of the highlights.
Profits and dividends distributed by companies that are in the Simples Nacional and by companies opting for the presumed profit regime that earn up to R$ 4.8 million are exempt from charging.
Dividends of up to R$20,000 distributed by small businesses and those distributed among members of the same economic group are also exempt from collection.
The text also provides for the end of the deductibility of Interest on Equity (JCP), a way of remunerating shareholders that brings tax advantages to companies. Several sectors of the economy are against the end of the JCP.
Income tax reform also affects individuals. One of the changes is the update of the Income Tax (IR) table for individuals, exempting from Income Tax all employees who receive up to R$ 2.5 thousand, which corresponds to a correction of 31% in relation to the current limit (R$1.9 thousand).
The values of the other IR ranges will also be readjusted, to a lesser extent.
According to the government, the update will exempt 5.6 million new taxpayers. With that, the exempt would go from the current 10.7 million to 16.3 million. On the other hand, other CLT workers will have a smaller discount on their paychecks.
Initially, the project provided for a limit of R$ 40 thousand in annual income for the taxpayer to opt for the simplified declaration of income tax.
However, by the agreement signed with the rapporteur, this limit was removed — that is, any salary range can opt for this model.
According to the text, taxpayers who opt for the simplified declaration can deduct 20% of income tax on the sum of taxed income up to the limit of R$ 10,563.60.
Also to compensate for the loss of revenue with the reduction of corporate tax, the rapporteur proposed cutting some tax benefits:
- exemption from income tax on housing assistance for public agents;
- presumed credit to drug producers and importers;
- reduction to zero of the aliquots of certain chemical and pharmaceutical products;
- exoneration for natural gas and coal-fired thermoelectric plants.
Although initially Sabino had ended the exemption of vessels, aircraft and their parts and pieces, in the approved text the tax benefit remains in effect.
The approved version also increases from 4% to 5.5% the rate on iron, copper, bauxite, gold, manganese, kaolin and nickel of the Financial Compensation for Mineral Exploration (CFEM), charged by an autarchy of the Ministry of Mines and Energy. It also includes niobium and lithium in the list of these ores.
Originally, the rapporteur had suggested transferring the Union’s share of the collection to states and municipalities, in order to compensate for the losses in collection with the IRPJ. However, the approved text maintains the share with the Union.
At the request of the Parliamentary Front for Agriculture (FPA), the text will continue to allow the deduction of the Workers’ Food Program (PAT) from the IRPJ.
As part of the agreement, the deduction of donations to the Funds for the Elderly and Children and Adolescents was also maintained, in favor of sports and para-sports projects, cultural projects, Brazilian audiovisual works of independent production and services and actions of the Program National Program of Support for Oncology Care (Pronon) and the National Program for Support of Health Care for People with Disabilities (Pronas/PCD).