Income tax: reform can inject R$20 billion into consumption


If someone loses, someone wins. What is valid in life is also valid in government decisions, even if it displeases big people. Person or entity. the intention of Ministry of Economy to readjust the table of Individual Income Tax (IRPF) – frozen since 2015 – has that consoling spirit. It may reduce federal collection by R$23 billion, but increase consumption by up to R$20 billion. And it would expand the number of Brazilians benefited by 45%, from the current 11 million people to 16 million – a legion that would start the year even with the “lion”.

The evaluation of the Department of Macroeconomic Research of Itaú Unibanco, is signed by economists Claudia Bruschi and Pedro Schneider, who are studying the proposal for the reform of the Income Tax still being processed at the Congress and therefore subject to change.

The Itaú study reveals that the potential expansion [de consumo] would be bigger in income ranges from 3 to 6 minimum wages and tends to benefit more from the demand for services and automobiles – segments most in demand by the population in this range.

This effect on the household consumption considers the tax that would not be paid and, in a kind of compensation, would return to the public coffers in taxes on consumption. “In proportional terms, the impact tends to be greater for the 9 million people who receive 3 to 6 minimums, for part of this effect can be offset by the end of the simplified declaration”, ponder the economists.

They explain that the proposal for income tax reform updates the tax base, offsetting a call limitation simplified statement with the increase of the exemption range from R$1,904 to R$2,500. With this change, 16 million people are expected to be exempt. Currently, this quorum is approximately 11 million people. Therefore, the expanded exemption range includes millions of Brazilians and produces as an effect more income. In the case of the simplified declaration, where it is possible to deduct – not for an increase in wages, but for a smaller expense with tax collection.

Economists consider that 20% of the income tax base for individuals has annual incomes of up to R$ 40 thousand, without the need to discriminate expenditures on education, health, social security and dependents. This non-discrimination of specific expenses is limited to R$16,754. Only this change in the simplified declaration can achieve [beneficiar] up to 7 million people, estimate Claudia Bruschi and Pedro Schneider.

Considering the difficulty of drawing hypotheses, based only on public data for the behavior of each income group in terms of deductions for health, education, social security and dependents, the study prepared by Itaú’s economists considers gross values ​​and disregards the end of the statement simplified.

A taxation of profits and dividends it is yet another chapter – even controversial – in the proposal for the reform of the Income Tax, since it also affects the taxation of individual income, considering the taxation at 20%, exempting the receipt of these dividends of up to R$ 20 thousand per month in a given circumstance. That is, as long as the dividends come from small companies with annual income of up to R$4.8 million.

The Itaú study assesses that the taxation of dividends can help reduce the phenomenon of ‘pejotization’, in which individuals start to receive a relevant portion of their remuneration from work via tax-free dividends, instead of salaries, taxed at source.

Dividend soap

Claudia Bruschi and Pedro Schneider inform that the number of people who declared having received dividends has jumped considerably in just over a decade. It went from 1 million in 2007 to 3.6 million in 2019 and the declared values ​​almost doubled: from 3.5% of GDP to 6.4% of GDP in the same period.

Economists understand that the measure helps to improve the progressiveness of the tax burden, given that, for these people, the effective IRPF rate, that is, how much tax they paid as a proportion of their total income, is considerably lower. “However, the proposal for a high exemption range and not included in the taxation table for individuals can be a relevant obstacle to reducing this distortion”, they state.

Regarding the possible changes that may occur during the consideration of the IR reform bill by Congress, economists highlight the increase in the exemption range, which, although already high in the international comparison, brings greater distributive effects.

They understand that an alternative version of the table could reconcile greater progressivity and impact on consumption, with a slightly smaller loss in revenue, as long as bands for higher incomes were created. Thus, the reduction in taxation for the lower income groups, with lower savings rate, would be offset by the increase for higher income groups, which have a high savings rate.

The Itaú study points out the importance of fiscal adjustment. He warns that in an emerging country, with a primary deficit and high debt, delays in this adjustment increase the risk of the public debt being on an unsustainable path. The result? Damage to maintaining interest rates at historically low levels and limiting economic growth.

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