understand what changes in your pocket if the reform is approved

The basic text of the Income Tax reform was approved in the Chamber of Deputies last Wednesday (1).

The bill still needs to be approved by the Senate and sanctioned by President Jair Bolsonaro to take effect.

Individual Income Tax Reform

The text updates the income ranges in the Personal Income Tax (IRPF) table with the aim of exempting a greater number of taxpayers. On the other hand, it reduces the simplified discount limit on the annual declaration.

In the assessment of specialists, a good part of taxpayers should benefit from the proposal, but the effect of the correction of the table tends to be practically null in annual terms in the higher income groups.

tracks

Rates

How was

how is it

Track 1

Free

Up to R$1,903.98

Up to R$2,500.00

Track 2

7.50%

From R$1,903.99

From BRL 2,500.01

Track 3

15%

From BRL 2,826.66

From BRL 3,200.01

Track 4

22.50%

From BRL 3,751.06

From BRL 4,250.01

Track 5

27.50%

Above R$ 4,664.68

Above BRL 5,300.01

Income tax exemption

The project envisages raising the exemption range (the monthly income free of income tax) from R$1,903.98 to R$2.5 thousand – a correction of 31%. With the new exemption range, more than 5.6 million will be considered exempt and, therefore, will no longer pay the tax.

With that, those exempt would go from the current 10.7 million to 16.3 million people. The other CLT workers, on the other hand, would have a smaller discount on their paychecks. The other RI ranges would be adjusted, but to a lesser extent (about 13%).

“Thinking about a system as a whole, the change from broadening the base and having bands to benefit those people with a lower income is important to make the system more progressive”, says Frederico Bastos, a professor at Insper.

Simplified statement

However, the project reduces the simplified discount limit in the annual adjustment statement to R$10,563.60.

Under current rules, the “standard” discount (amount that can be deducted from income, on which the tax will not apply) is 20% of annual taxable income, limited to R$ 16,754.34. The deduction replaces all legal deductions from the full return, including those for education and health expenses.

Initially, the bill provided that the taxpayer could opt for the simplified declaration if they had up to R$ 40 thousand in annual income. However, by the agreement signed with the rapporteur, this limit was removed – that is, the taxpayer of any salary range may opt for this model.

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.

With information from G1