Income Tax reform increases distortions and encourages pejotization

Different modalities were created to encourage the growth of small companies, but the expansion of beneficiaries included sectors that do not need them

State ContentChamber of Deputies approved income tax reform last Tuesday

Approved last Tuesday by the Chamber of Deputies, the income tax reform has several problems. The main one, a leak of US$ 53.4 billion in the public accounts with the reduction of the collection, according to the calculations of the economist Sérgio Gobetti. But a problem that is even difficult to explain is the reduction in corporate tax on presumed profit and the maintenance of the Simples distortions, with revenues of up to R$ 4.8 million. Both are models in which the income tax is replaced by a generally lower income tax. At first glance, the change seems fair. The differentiated modalities were created to encourage the growth of micro and Small business. But over the years, the list of beneficiaries has been expanded, including sectors and companies that do not need them.

You can explain using the case of a lawyer, a category that is part of the Simple national, which earns R$ 15 thousand per month. If he works with a formal contract, he pays R$3,975 of Income tax every 30 days. But, if you open a company and pay for presumed profit, with the reform, the value goes to R$ 2,400, added with the Income Tax and Social Contribution on Net Income. With the company in Simples, it drops to R$600 per month and another R$50 to R$61 of CSLL. This is without counting the Income Tax exemption on dividends for shareholders of Simples companies and on the presumed profit. For the others, which are also currently exempt, the rate will be 15%. Instead of correcting distortions, the text deepens them, excessively benefiting legal entities at the expense of other taxpayers. And the incentive to the so-called pejotization increases, the transformation of service providers and workers into companies.

But the worst will come from the effects on the economy. By offering an exaggerated and widespread benefit, it burdens the larger companies, which are responsible for most of the investments. And on top of that it creates an incentive for small businesses not to grow. Or that they create other companies with lower revenues to continue being entitled to the benefit. In the end, there will be an incentive for them not to conquer new markets or create new products and services. Just the opposite of what the reform should propose.