Brazil tax reform bill proposes tax cuts for individuals, companies

© Reuters. FILE PHOTO: Brazil's Economy Minister Paulo Guedes speaks during a ceremony to launch a program to expand access to credit at the Planalto Palace in Brasilia, Brazil, August 19, 2020. REUTERS/Adriano Machado

By Jamie McGeever and Gabriel Ponte

BRASILIA (Reuters) -Brazil's government on Friday unveiled the second phase of its wider tax reform bill, in which it aims to reduce income tax for up to 30 million workers, cut corporate profit tax, and increase levies on financial market gains and activity.

Brazil's tax system is widely seen as one of the most complex in the world, and the government insists that simplifying it and reducing the overall tax burden is crucial to fostering sustainable, long-term investment and economic growth.

"Thirty million salaried workers in Brazil will pay less income tax because, for the first time, we are taxing capital gains," Economy Minister Paulo Guedes told reporters after delivering the proposals to the leader of the lower house of Congress, Arthur Lira.

"This is only the start. This shows a new direction. If taxes have been rising for the last 40 years, they will start falling now," Guedes said, adding that the number of individuals exempt from paying any income tax will double to 16 million.

Lira also stressed that the overall tax burden will not be raised, and said he is confident Congress will approve the tax reform bill this year.

Guedes said income tax cuts for individuals will be funded by increases in capital gains taxes.

Revenue Service officials said in an online presentation that the income tax changes will be broadly revenue-neutral, with revenue rising by less than 2 billion reais ($405 million) over the next three years.

10% CORPORATE PROFIT TAX

In a presentation released by the Economy Ministry, the government proposed a 20% tax on dividends, with a monthly exemption of 20,000 reais.

Revenue Service officials estimate that the increase in dividend taxes will boost Treasury coffers by around 18.5 billion reais next year, rising to 54.9 billion reais in 2023 and up to 58.2 billion reais in 2024.

The proposals also include a 15% tax on all stock market transactions to be calculated on a quarterly basis instead of monthly, as is the case currently.

The bill envisages corporate profit taxes being cut to 12.5% next year from the current 15%, then lowered to 10% from 2023.

Revenue Service officials estimated this will reduce the corporate profit tax take by 18.5 billion reais next year, 39.2 billion reais in 2023, and 41.5 billion reais in 2024.

The government sent the first phase of its long-awaited tax reform proposals to Congress almost a year ago. That dealt with the PIS and Cofins social contribution levies and value-added tax (VAT).

($1 = 4.93 reais)