IR exemption should benefit 36 ​​million, but tax experts warn: ‘Who pays the bill?’

The measures announced this Wednesday (27) by the Minister of Finance, Fernando Haddad, drew attention for fulfilling a campaign promise by President Luiz Inácio Lula da Silva, to exempt those earning up to R$5,000 from Income Tax. But, in practical terms, what are the effects of these measures on people?

Tax lawyers heard by the InfoMoney indicate that the announcement could provide relief to a large part of the population, since according to IBGE accounts, almost 80% of workers are in this income range. However, it could end up weighing on the other hand, with increased costs for companies. In other words, the measures would work not as a medicine but rather as a placebo.

Haddad also announced that the government will propose the creation of a minimum retirement age for military personnel, in addition to limiting the transfer of pensions, as well as other adjustments to Judiciary careers, which could generate savings of more than R$70 billion in next two years, which was considered by tax experts to be an important measure.

The IR exemption of up to R$5,000 would benefit 36 ​​million taxpayers, according to the National Association of Tax Auditors of the Federal Revenue (Unafisco). Therefore, the tax exemption for income of up to R$5,000 is a measure that sounds attractive at first glance, according to Waldir de Lara, lawyer and founder of LaraFy Consultoria.

“But the inevitable question is: who will foot the bill? Because the cost of this fiscal kindness can exceed R$40 billion annually. Behind the discourse of tax justice, there is the reality of a government that desperately needs resources to close public accounts”, says the tax expert, adding that this exemption, ultimately, is not a genuine relief, but a redistribution of burdens. which should fall to another class: the private sector.

The government has already signaled that it intends to compensate for the loss of revenue with measures such as taxing profits and dividends and intensifying inspections of companies. “As a result, Brazilian businessmen, who already deal with one of the highest tax burdens in the world, may be about to face another blow to their cash flow”, declares Waldir de Lara.

Legally, the federal government can increase or reduce income tax brackets. Currently, the IR ranges are as follows:

• Up to R$ 2,259.20 is exempt from IR
• From R$2,259.21 to R$2,826.65 there is a rate of 7.5% charged on the difference that exceeds the exempt amount.
• From R$2,826.66 to R$3,751.05 there is a 15% rate also charged on the difference from the previous value.
• From R$3,751.06 to R$4,664.68, the rate is 22.5% also charged on the difference that exceeds the previous value
• Above R$4,664.68, the rate also charged on the previous difference is 27.5%.

The way this layered taxation is charged is confusing, but tax experts say they have not yet had access to the complete material to know what the bands above R$5,000 will look like. “But in fact, the increase in the exemption range represents an important increase in the income of many workers. However, it is important that this measure is sustainable for public accounts, which are in the red, with a deficit of R$50 billion”, says Joaquim Rolim Ferraz, partner at Juveniz Jr. Rolim Ferraz Advogados. “Meanwhile, studies indicate that expanding the exemption could cost an annual tax waiver of R$60 billion.”

For experts, the government should cut public spending of this order, to comply with the Fiscal Responsibility Law and the spending cap, before exempting anyone from taxes.

The size of the impact

According to Morvan Meirelles Costa Junior, founding partner of Meirelles Costa Advogados, from the announcement it is clear that the change in the taxation system will have an impact that is not restricted to taxpayers with income of up to R$5,000. “Unafisco’s preliminary calculations indicate an impact for approximately 78% of taxpayers who declare income tax”, says Costa Junior.

According to Guilherme Cordeiro Ferreira, lawyer at Maia & Anjos Advogados, if almost 80% of workers receive up to R$5,000 (just over 3.5 minimum wages in 2024), it is a fact that the measure has a strong impact. “However, it is necessary to know what will be done to compensate for this loss in revenue. The government must seek other sources of income, whether through aggressive taxation in the upper brackets or the creation and increase of other taxes”, he states.

Medicine or placebo?

For lawyer Jean Paolo Simei e Silva, partner at Fonseca Brasil Advogados, faced with these questions, it is necessary to know whether the IR exemption for income up to R$5,000 will serve as real relief or just a fiscal placebo. “The announcement of the expansion of the exemption range seems to fulfill an old Brazilian fetish: redistributing resources not by creating wealth, but by giving up part of it. A generous gesture, without a doubt, but with implications that deserve a less emotional and more Cartesian analysis”, he said.

According to Silva, it is necessary to know if in a country where informality is the norm and only a small fraction of income passes through the Lion’s scrutiny, who exactly will be impacted? “The answer is clear: those formal workers, located in the middle spectrum of the income pyramid, who are taxed before receiving their salary. For those benefiting, the impact will be palpable, giving these workers a financial boost that can be used for consumption, savings or to pay off debts. But, as Churchill said, there is no free lunch and this tax break will have to be compensated.”

For the lawyer, the great paradox of this is that, while easing the pockets of millions, they turn their attention to the “super-rich”, introducing taxation on profits and dividends above R$50,000 per month. “The measure sounds progressive on paper, but in practice it hides the risk of capital flight and fiscal creativity, two sports that our businesspeople master masterfully.”

However, it is necessary to remember that fiscal mathematics has its own gravity. A waiver of billions in a budget already pressured by the need to invest in infrastructure, health and education may seem, in the long term, like a shot in the foot, according to lawyers. Taxing the rich is a nice solution, but historically ineffective if it is not accompanied by robust compliance mechanisms and a less complex and more rational tax system, in the opinion of experts.

A pragmatic analysis

In essence, expanding the income tax exemption range is a partial remedy for an economy that suffers from more serious structural illnesses. “Reducing the burden on the working class is commendable, but without attacking the regressiveness of indirect taxes or simplifying the system as a whole, there is a risk of perpetuating an inefficient and unequal fiscal model,” said Silva.

For Renata Elaine Ricetti Marques, post-doctorate lawyer in Tax Law from USP, the announced package was much more economic than fiscal, as the impacts are direct on the economy. “The income tax exemption of up to R$5,000 affects the majority of workers. Even if you have a higher tax rate for those earning R$50,000, there is doubt as to whether one thing outweighs the other. Furthermore, this change could lead to price increases, which will ultimately increase people’s cost of living”, he states.

Lawyer Alessandro Batista, tax specialist and partner at ABN Advogados, agrees that the plan has more of an economic bias. The good side, according to him, was the announcement that there will be new metrics for military retirement. “A very important point and one that needed to be done a long time ago. Not only military personnel, but also high-ranking public officials, especially the Judiciary, where, in practice, the constitutional salary ceiling is not respected.”

According to Batista, the limitation of parliamentary amendments means that Congress will lose some strength. “Which ends up in another problem, the government restricting it and making it a bargaining chip for approval in votes in Congress.”

The issue of limiting tax incentives in the event of a deficit is important, according to the expert, but it is necessary to understand that these tax incentive programs only exist due to the lack of organized and lasting public policies for industrialization, entrepreneurship and employability.

“If there was a policy, there would be no need for tax programs to promote employment and income generation. And in the end, businesspeople will redo their plans and insert them into the price, because that’s how it always works, and it’s the people who always pay the bill.”