June 7, 2023

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Income tax reform gives R$22 billion to the middle class in election year and takes R$10 billion in 2023 - 08/29/2021 - Market

Income tax reform gives R$22 billion to the middle class in election year and takes R$10 billion in 2023 – 08/29/2021 – Market

a IR Reform (Income Tax) A proposal from Jair Bolsonaro’s (without party) government would directly inject R$22 billion into the middle class pocket in 2022, the year of elections. However, the following year, the gains should be cut by about half because taxpayers would have to return about R$10 billion to the treasury.

In reframing the rules for individuals, the infrared table correction It will (beneficial to taxpayers) already in effect next year if the project is approved by December 31 of this year. Salaried employees will have lower paycheck taxes in 2022.

However, experts point out that only in the following year’s announcement, the rule limiting Simplified discount mechanism.

This means that when the tax adjustment is made in 2023 (with respect to 2022 income), approximately 8 million people will be prevented from making simplified statement. Some of them will pay more taxes with the change, generating an annual profit of R$10 billion for the government.

The text expands the income tax exemption for individuals from R$1,903.98 for current monthly income to R$2,500. Other tax brackets have also been corrected, but to a lesser degree.

To offset part of the cost of this procedure, the government proposed a simplified ad cap.

Today, the mechanism grants an automatic 20% deduction on taxable income, up to a maximum of R$16,754.34 (corresponding to an annual income of R$83,771.70).

Under the proposal, the right to use this system will be granted only to taxpayers whose annual taxable income reaches R$40 thousand.

According to economist Rodrigo Aurier, who specializes in fiscal policy and taxation, the impact of the reform will coincide with the political cycle, putting nearly R$22 billion into the hands of the middle class to revitalize the economy in an election year.

This gain will be directly on the worker’s salary, with a lower tax deduction. Orer, on the other hand, asserts that the burden from the simplified permit restriction will be for the following year only.

“They are the ones hurt by the end of the simplified model,” he adds. “They will only find out when they make the Annual Adjustment Declaration in 2023. In hindsight, the elections have already passed.”

According to the economist, the gain with infrared table correction The loss would be greater by the end of the simplified tax return for most people, except for the 2 million taxpayers, who would be able to pay more tax with the change or have a lower refund.

According to the economist’s estimates, formal workers with a monthly income of R$6,600 to about R$8,400 would be the taxpayers most vulnerable to the changes.

If these people do not have additional deductions on their income tax returns, they will pay more tax.

NS Government reform text, maintained by Rapporteur Celso Sabino (PSDB-PA), says that from calendar year 2022, the simplified deduction will be issued to taxpayers who, in a calendar year, earned income of up to R$40,000.

a a sheet I sent inquiries to the IRS over the past week, but the agency did not clarify the issue.

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First, the tax authorities merely said that “if there is no express wording referring to the previous period, the deduction will be valid for 2022,” but did not clarify whether it referred to preserving or limiting the right. .

When questioned again, the Revenue Authority stated that “everything depends on how it is approved” and did not clarify the moment of application of the measure proposed by the government. She sought again with a request for clarification, but did not respond.

Notably, one of the drafters of the IR reform said the assessment that the simplified maximum deduction would only apply in the 2023 tax return, on calendar year 2022 income, is correct.

However, the government’s calculations on the effects of the measure on public accounts consider that the effect of reducing the simplified deduction will already be generated in the next year.

The revenue explanatory note states that savings with this limitation will be R$ 9.98 billion in 2022, R$ 10.69 billion in 2023, and R$ 11.41 billion in 2024.

The tax authorities also did not say whether the expected impact for the next year refers to the concept of efficiency, which is the 2023 announcement that refers to the tax due in 2022.

Orer explains that the simplified deduction limit cannot actually be valid in the 2022 declaration because it refers to tax due in 2021. This possibility, in practice, would cause taxpayers to pay more tax related to the pre-reform period, which could result in to may not.

“Strictly speaking, changes in income tax are subject to the annual principle. They are only valid for the following fiscal year, the taxpayer has to prepare. The 2022 amendment refers to the calendar year 2021. Therefore, it violates the annual principle.”

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The tax partner of the law firm Demarest Carlos Eduardo Orsolon agrees to this assessment by the application deadline.

For him, the IR schedule correction will take effect in 2022, but the simplified deduction restriction will only be effective in the 2023 announcement.

For the attorney, if the project is approved, the simplified deduction limit will have a positive effect on tax collection, but will have a negative effect on the taxpayer who will be required to file the full declaration.

Orsolon says he thinks there will be an increase in bureaucracy because a full declaration requires a person to keep a greater amount of documents and receipts.

“While in the simplified form you are calculating a percentage of your income, which is the amount you deduct, in full, to deduct any expenses, you must have proof. You must have proof of education expenses and medical expenses. You have spent it, but you have not deducted it.”