New tax package: Tax experts warn of impact on taxpayers’ pockets

New tax package: Tax experts warn of impact on taxpayers’ pockets


Summary

R$70 billion fiscal package announced by the Minister of Finance with measures for Brazil’s economic structure.




The Minister of Finance, Fernando Haddad, announced on the 27th a fiscal package worth R$70 billion. Through a national declaration to radio and television broadcasters, measures for Brazil’s economic structure were announced.

The changes include the revision of the income tax with the exemption from IR (income tax) for those earning up to R$ 5,000 and the 10% rate for incomes above R$ 50,000, as well as adjustments to military pensions. The government has also proposed a new model for the distribution of social benefits and has linked parliamentary amendments to the GDP (Gross Domestic Product), with the aim of reducing the fiscal deficit and promoting a more equitable distribution of resources.

According to tax experts consulted by Terra, the prediction is that some taxpayers will end up having to foot the bill needed to close the government’s books. There are also doubts about how the package will be applied in practice, as it depends on regulation by the National Congress.

“The minister began his speech by addressing the economy itself. He brought economic data, which he exaggerated for better perspective. The scenario today is not the one described and the economy is doing badly”, criticizes Alessandro Batista, tax expert and partner of ABN Advogados.

According to the expert, the government’s aim to improve the performance control mechanism also attracted attention, which could result in a reduction in social benefits. “It is clear that today errors occur in the assessment of entitlement to benefits, there are frauds. However, in recent months we have seen sequential cuts to these benefits, reaching a part of the population that is truly dependent on aid. And we have not seen the government create mechanisms for these people to re-enter the job market. It is also a significant announcement from an economic point of view, but it should create problems for the most vulnerable segment of the population”, he states.

For João Valença, tax specialist at VLV Advogados, the change in military retirement through the establishment of a minimum age and the limitation of the transfer of pensions is positive.

“The discussion on military pensions has been ongoing since 2019. It is an important progress, but changes are still needed in other sectors of Public Power such as the Judiciary. It is possible to assess, on the basis of the measures announced, that the burden of the tax cut will still fall much more on the private sphere than on the public one”, he underlines.

Renata Elaine Ricetti Marques, a postdoctoral tax lawyer at USP (University of São Paulo), estimates that the government may be frustrated in cutting spending if tax collection from the population with greater purchasing power does not compensate the exemption that has been granted. “I think it’s a bit reckless because this income tax exemption of up to R$5,000 will have a huge impact. Although a higher tax rate is expected for those earning R$50,000, exempting up to R$5,000 will have a big impact on the economy. It could increase prices, there will be an increase in people’s cost of living,” he underlines.

However, he positively evaluates the initiatives aimed at reducing the tax benefits granted by the government. “It’s already in line with what tax reform is about and the whole idea of ​​no longer working with these tax exemptions and incentives that would create an unequal issue for taxpayers,” he says.

Executive x Legislative

Another point addressed by the experts is how the National Congress will be involved and should also be the guarantor of the feasibility of the new fiscal package announced.

Minister Fernando Haddad indicated in his speech that parliamentary amendments will now be limited to the GDP (Gross Domestic Product) itself, the government’s own revenues with a new metric and a percentage of these allocated to public health. The consequence of this is that the National Congress must lose some of its strength.

“These amendments, although much discussed and much attacked, gave Congress the opportunity not to rely too much on the blessing of the Executive Branch. In other words, they gave some autonomy to the deputies. And the government now intends to limit or reduce this autonomy,” he estimates.

For the tax expert, changes in general still depend on discussions between the legislative and executive branches and changes in legal rules. “The package is more of a promise than an effectiveness. The minister has not yet indicated specific legislation. Let’s see how this clash of forces will end,” he concludes.

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Source: Terra

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