Income Tax in Brazil
Income tax has become a national debate in Brazil. The few Brazilians who pay it and the great injustice between the weight of income tax applied on individuals and on companies made this a polemic subject.
In Brazil, the Income Tax is applied on money earned by people, through Individual Income Tax or Imposto de Renda de Pessoa Física, also known as IRPF; or applied to the profits provided by companies, through Corporate Income Tax or Imposto de Renda de Pessoa Jurídica, also knows as IRPJ. It has to be declared every month or year to the Secretaria da Receita Federal do Brasil (RFB). While in other countries this is the prime source of collection, in Brazil only a few Brazilians pay it.
Why this occur?
According to a recent study provided by Receita Fereral (RF) only 45% of the 29.518 big companies in Brazil were paying the IRPJ. The causes of this non-payment movement were:
- not willing to pay
- suppression of information
- existence of injury
Brazilian People Pay More Income Tax than Brazilian Companies
Apart from the big companies, another problem attacks the Brazilian income tax: most of the times, Brazilian people pay even more taxes than the companies and businesspeople. This occurs not because the tax burden of the companies is low, but because the basis to calculate the income implies that the IRPF should be taxed to almost all revenue earned by people, while the IRPJ should only be taxed to the net profit of the companies.
Therefore, even though Companies Income Tax plus CSLL (Social Contribution over Net Profit) achieves 32% and the IRPF never overpasses 27,5%, it's on private people that big charges relies. For specialists, however, the great injustice of the system occurs when comparing the weight of income tax between individuals and companies. It's not possible to establish effective income tax on corporations because the tax applies only to the profits declared by the companies, and not to the actual profits earned by them.
The Income Tax Debate
The exemption of Income Tax on the portion of the profit sharing companies have been a discussion agenda in Brasília. To this debate were invited representatives of the Minister of Labor and Treasury and the Department of Statistics ans Socioeconomic Studies (Dieese). Since January 1st, 2013, workers who earn up to BRL 6 000 profit sharing and performance of business do not pay more income tax on those shares.
The ex-president of the Unified Workers' Central and deputy Vicentinho highlights that the exemption was an old demand of the workers. He said workers were frustrated when they received the results and profit sharing and there was a discount of the income tax. "This interim measure, despite not contemplating the full rights of all unions, which is the purpose of a project of law that I am the author of, to exempt all regardless of salary, even so, this provisional measure is wonderful because it exempts almost all workers, since the vast majority, 99%, receive up to BRL 6 000", says Vicentinho.
Measure Effects
With this measure, the government will give up BRL 1.7 billion a year in taxes. The technical director of Dieese, José Silvestre Prado, explains: "Government fails to raise, but after it wins the tip. This will stimulate the economy, because that money will be back into it."