Income tax reform had become a quagmire for Paulo Guedes. Now, it has become a hole, as it will reduce general government revenue by at least R$30 billion, in addition to taking more money from states and municipalities, which could lead to a political problem. But the government doesn’t care, and Jair Bolsonaro even less.
The satisfaction is due to the fact that they pulled a political goat out of the overcrowded room with cattle and cows in the marsh. The businessmen’s revolt should subside, not least because the reform loses the progressive character it had, despite all the twist.
The change was almost generally criticized or detested for increasing the tax burden of many companies (not all), maintaining tax privileges of certain firms (from pejotization), for being technically bad and for not changing the lives of 85% of the population, at least, indifferent to the change in income tax due to barely having income.
To top it off, he had revealed again that the Ministry of Economy is inept salsa maker in the face of criticism, no one wanted to take responsibility for the ugly package. A few days after presenting a serious reform, with serious economic impacts, Paulo Guedes already said he could change rates as if he were betting beans on a grandpa’s poker table, which shows the technical and political seriousness with which the thing was planned.
With the new version of the reform, which may not even be the last, many companies and, in the end, their shareholders, will pay even less tax, even with the unduly famous 20% tax on dividends. The corporate income tax rate will drop from 25%, in practice, to 12.5%.
Even because of this, states and municipalities will lose more revenue (since the cake of taxes collected by the Union is divided). In the general government’s revenue, a hole of at least R$ 30 billion per year appeared, according to the account of the project’s authors, the caveat is necessary, as it is rarely possible to believe that all the money provided for in alternative revenue sources will come.
It’s easy to cut tax and lose revenue; inventing methods of recovering the lost tutu is difficult, the bill is kicked up and, besides, whoever goes in theory or in principle to pay more will still kick back. The new version of the project provides, as a major compensation, the cut in tax benefits for the cosmetics and perfumery, medicine, chemical, boat and aircraft industries.
What will the government do about lost revenue? For now, he’s not worried at all. First, because the collection has increased far beyond the imagined account because of the faster downturn in the economy and the fat contribution of inflation. Second, because the loss of revenue does not change at all what the government can spend next year, which depends on the spending ceiling (revenue gives to the spending on the ceiling).
In fact, there were predictions that the fiscal deficit would shrink more than anticipated given the unexpected extra revenue. Third, government officials say that, because of the reduction in the tax burden and taxes on companies, economic growth would be even greater, making up for the loss.
Furthermore, for families that manage their fortunes through family holdings, the new project is cheerful and frank. The incentives for pejotization have increased, in a first reading of a project that is always so convoluted, detailed and with impacts as varied (even on apparently equal taxpayers) as the tax reform ones.
In the case of salaried workers, the reform remains the same.
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