The Income Tax (IR) reform proposed by the government of Jair Bolsonaro will inject R$ 22 billion directly into the pocket of the middle class in 2022, an election year. In the following year, however, experts estimate that the gain should be reduced by almost half because around R$ 10 billion will have to be returned by taxpayers to the Treasury.
In the reformulation of the rules for individuals, the correction of the IR table (beneficial to the taxpayer) will already be valid next year if the project is approved by December 31 of this year. Salaried employees will have less tax withheld on paychecks in 2022.
However, specialists point out that only in the following year’s declaration would the rule that limits the simplified discount mechanism become effective.
This means that when the tax adjustment is made in 2023 (relating to 2022 income), almost 8 million people will be prevented from making the simplified tax return. Part of them will pay more tax with the change, generating an annual gain of R$ 10 billion for the government.
The text expands the income tax exemption range for individuals from the current R$1,903.98 of monthly income to R$2,500. The other tax brackets are also corrected, but to a lesser extent.
To offset part of the cost of this measure, the government proposed a ceiling for simplified reporting. Today, the mechanism gives an automatic 20% discount on taxable income, with a limit of R$16,754.34 (corresponding to an annual income of R$83,771.70).
Under the proposal, the right to use this system will only be given to taxpayers with annual taxable income of up to R$ 40 thousand.
Reactivation of the economy
According to economist Rodrigo Orair, who specializes in fiscal policy and taxation, the effect of the reform will coincide with the political cycle, putting nearly R$22 billion in the hands of the middle class to reactivate the economy in an election year.
This gain will be directly on the worker’s paycheck, with a lower tax deduction. Orair emphasizes that, on the other hand, the burden caused by the restriction of the simplified declaration will only be for the following year.
“They are those harmed by the end of the simplified model. They will only discover this when they are going to make the annual adjustment declaration in 2023. Too late, the elections have already passed”, he says.
According to the economist, the gain with the correction of the IR table will be greater than the loss with the end of the simplified declaration for most people, with the exception of 2 million taxpayers, who will be able to pay more tax with the change or will have a refund smaller.
According to the economist’s estimates, formal workers with a monthly income of R$6,600 to approximately R$8,400 will be the taxpayers most likely to be harmed by the changes.
If these people do not have additional deductions to make on their income tax return, they will pay more tax.
The text of the government reform, maintained by the rapporteur Celso Sabino (PSDB-PA), says that from the calendar year 2022 the simplified discount will be released to those taxpayers who, in the calendar year, had earned income of up to R$ 40,000.
Folha sent inquiries to the IRS over the past week, but the agency did not explain the issue.
First, the tax authorities limited themselves to saying that, “if there is no express wording referring to the prior period, the discount will be valid for 2022”, but did not explain whether it was referring to the maintenance of the right or its limitation.
Again questioned, the Revenue stated that “everything depends on how it will be approved” and did not make clear the moment of application of the measure proposed by the government. Sought again with a request for clarification, she did not respond.
Privately, one of the formulators of the IR reform said that the assessment that the limit to the simplified discount will only apply in the 2023 declaration, on the income of the calendar year of 2022, is correct.
However, the government accounts on the effects of the measure on public accounts consider that the impact of limiting the simplified discount will already be generated next year.
Explanatory Note of the Revenue states that the savings with this restriction will be BRL 9.98 billion in 2022, BRL 10.69 billion in 2023 and BRL 11.41 billion in 2024.
The tax authorities also did not say whether the expected impact for next year refers to the concept of competence, which considers the 2023 declaration referring to the tax due in 2022.
Orair explains that the simplified discount limit could not be valid already in the 2022 declaration because it refers to the tax due in 2021. This possibility would, in practice, cause taxpayers to pay more tax related to a period prior to the reform, which would not it’s allowed.
”Strictly speaking, changes in Income Tax are subject to the principle of annuality. They are only valid for the following fiscal year, for the taxpayer to prepare. The 2022 adjustment refers to the calendar year of 2021. Therefore, it would violate the principle of annuality,” he stated.
The tax partner of the law firm Demarest Carlos Eduardo Orsolon agrees with this assessment on the deadline for applying the measures.
For him, the correction of the IR table would take effect in 2022, but the limitation of the simplified discount would only be effective in the 2023 declaration.
For the lawyer, if the project is approved, the limit to the simplified discount will have a positive tax collection effect, but it will have a negative impact on taxpayers who will be required to make the full declaration.
Orsolon says he believes there will be an increase in bureaucracy because the full declaration requires the person to keep a greater volume of documents and receipts.
“While in the simplified form, you calculate a percentage of your income and this is the amount you deduct, in full, to deduct any expense, you have to have proof. You have to have proof of education expenses, medical expenses. you spent it, but you didn’t deduct it.”
Source: with information from Folha de S.Paulo