First of all, we need a recap to understand what the Income Tax is.
The “scary” income tax is a federal tax charged annually on the income of both natural persons and legal persons. Therefore, this contribution falls on salaries, company profits, and other types of income that a person may have. And where does all this money go? That’s what the economist, Fabiana Souza, explains:
This money returns to society through public services, such as health, education, security, social programs, infrastructure, and public politics that make the country work.”
It’s important to highlight the role of this tax in the redistribution of income, an old theme in society, but very important to promote tax justice. That’s why it works progressively. If you earn more, you pay more, and if you earn less, you pay less.
How the income tax exemption range will work?
The Chamber of Deputies approved a project that expands the income tax exemption range for those who earn up to R$5.000 per month. Before, the exemption was only 2 minimum wages, equivalent to R$3,036 per month.
Therefore, those who earn up to R$5,500 will have a 75% discount, those who earn up to R$6,000 will have a 50% discount, those who earn up to R$6,500 will have a 25% discount, and those above R$7,350, the progressive table will still be the same, with the maximum rate of 27.5%
Now the project will go to the federal senate, and then to President Lula’s sanction. If approved, the measures will already start to take effect on the 2027 declaration. But here comes an important question: with all these exemption initiatives, how will the economy deal with this reduction?
“When the government collects less tax, less money enters public funds (renunciation), and this can press the budget. But, at the same time, those who earn up to R$5.000 now have more money to spend, that´s part of the direct renunciation tends to be compensated by the dynamism of the economy.”
“However, there´s already a bill that provides the taxation of dividends and very high profits, at a rate of 10% that can generate approximately R$34 billion in revenue. On the other hand, projections estimate a tax waiver of around R$31 billion per year with the new exemption. The impact can be practically null.”, emphasizes Fabiana Souza.
The fortunes tax
The project also stipulates an additional tax to compensate for the money “lost” in the expansion of the range. For the “super rich”, those who have an income that exceeds R$50.000 per month, will have to contribute 10%.
There are some divergences between the use and existence of the term “super rich”, the rapporteur of the project, Arthur Lira, told CNN, that people who earn this monthly salary range can’t be considered super rich, neither here nor in other countries around the world, classifying it as “stigma”.
In an ironic post made by the official account of the Brazilian Government, a “revelation tea” was made. Comparing monthly incomes to the term “super-rich”, making it clear that if you earn up to R$50,000 per month, the new measures don´t affect you, unlike those who earn more than R$50,000 and will have a higher charge.
Is income tax a villain in society?
The deputy Julia Zanatta, from PL of Santa Catarina, presented a Bill to extinguish the income tax. In the project, the deputy says, “The existence and maintenance of income tax was also defended by Karl Marx and Friedrich Engels“, explaining that the progressive income tax would be one of the necessary measures to implement communism in a country. She also reflected that despite the tax revenue, they “don´t cause a positive reflection on the lives of citizens”.
According to Zanatta, the extinction of the tax will allow greater financial freedom to citizens and stimulate production. However, this isn’t progressing.
Tax justice and commerce
The project has everything to be sanctioned by the end of the year, and looking in an optimistic direction, may promote tax justice according to the economist Fabiana Souza: “For decades, Brazil kept the income tax table outdated and exempt profits and dividends, which ended up overloading the working class much more than businessmen and investors.”. And she complements that with those new valuations, the country can “better distribute the weight of taxes and reduce inequalities”
And looking forward to commerce, she says: “The money used to go to the tax is now in the pockets of families, and this makes a direct difference in daily life because it can pay a bill, buy food, improve health, invest in children’s education, acquiring goods, or having access to a moment of leisure.” Adding more “Even if part of this extra income is used to save or pay off debts, the effect remains positive, as it reduces debt and increases confidence. With more people consuming and with less debt, commerce is strengthened, jobs increase, and the economy is more heated and stable.”
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The article above was edited by Isabelle Bignardi.
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