Tax reform will increase the number of income tax exemptions

Last Friday, 25th, the second phase of the Tax Reform was presented by the Minister of Economy, Paulo Guedea, and the President of the Chamber of Deputies, Arthur Lira.  The project deals with the Tax Reform for Individuals, Companies and Investments.  

According to the Federal Government, the change will bring simplification and lower costs, reduce misrepresentations and end privileges without impacting the government.

According to the information from the Federal Government’s website, the main goals of the Reform are:

• Simplification and lower costs;
• Legal Security and Transparency;
• Reduction of misrepresentation and end to privileges;
• Preservation of global tax burden;
• Fight evasion;
• Impartiality in economic decisions;

More investments and jobs

The proposal updates the exemptions for Individual Income Tax.  Today, those who make up to R$ 1900 are exempt; with the reform, the exemption would apply to those who have a monthly salary of up to R$ 2500.  The Economy Ministry informed us that the number of Brazilians who will not pay income tax will increase from 10.8 million to 16 million, a 31% increase in the bracket of the exempt. 

Another significant change concerns those who have a rate of 27.5%;  today this rate is applied to those who have a salary starting at R$ 4,664.68, with the reform the rate who be applied to those who make more than R$ 5,300.1.

It will be possible to update property values.

The proposal will allow Income Taxpayers to update their property values.  Today, real estate is held at its original value at declaration, and when selling the property, the individual must pay between 15% and 22.5% capital gain tax.

Updating the value of estates will also be allowed, where the amount will be subject to 5% of the tax in relation to the difference in the update. This will make the taxpayer pay less taxes when selling assets.

Changes in IRPJ

With respect to changes in Corporate Income Tax (IRPJ), the general rate will be reduced from 15% to 12.5% ​​in 2022, and to 10% in 2023. The additional 10% for profits above R$ 20 thousand per month will be maintained.

The window for payment of IRPJ and Social Contribution on Net Income (CSLL) have also been changed, which is now quarterly, ending the annual option.

Written by Marcos Ferreira, content assistant at Drummond Advisors