Income Tax: after exemption, Treasury plans new changes

The Ministry of Finance is working to increase federal revenue and thus rebalance public accounts. The Minister, Fernando Haddad, has already announced some changes related to Income Tax that contribute to this objective.

Earlier this week, fulfilling one of the campaign promises of the president-elect, Luiz Inácio Lula da Silva (PT), a Provisional Measure (MP) was announced that defined a new exemption limit for Income Tax, benefiting people with monthly earnings of up to BRL 2,640.

However, to compensate for this measure, the minister announced initiatives to tax the income of citizens residing in Brazil, which are deposited abroad. The intention is to reach resources in tax havens — which allow tax evasion. According to members of the ministry, the objective is to close revenue gaps, taxing what is not collected.

Tax havens are known to be used for tax evasion. Source: Getty Images

The decision to publish specific measures allows the government to guarantee that they will come into effect next year – which would not apply to the Income Tax Reform, scheduled for the second half of the year. Considering that the changes in the IR only come into effect the following year, and it is not known for sure when the reform will be completed, the Government guaranteed that the MPs will be applied in 2024.

New changes foreseen by the Ministry of Finance

Despite not being officially announced, Haddad has already signaled some of the tax benefits that will be achieved by the Government’s next actions. One of them is interest on own capital (JCP), which is a way of distributing the profits of a publicly traded company. According to the minister, abuses were taking place in this modality.

Another measure that should be eliminated is the absence of taxation of the distribution of profits and dividends of a company — which should be dealt with in the second semester. Although the profits of companies are already taxed in Brazil, the Government is also considering collecting them from distribution.

Finally, the exclusive funds are also in the sights of the government’s economic team, so that they would be taxed periodically and not just at the time of redemption. This measure should remain for the second half of 2023, within the scope of the IR reform.

According to the newspaper O Globo, economists argue that the review of JCP and dividends should be accompanied by a reduction in the Corporate Income Tax, in order to avoid a tax increase.

Some of the aforementioned measures were already provided for in a bill sent to Congress in 2021 by the then Minister of Economy, Paulo Guedes, to revise the Income Tax rules. However, the stretch of tax havens was withdrawn in the Chamber.