2022 started with a question: will the Brazilian tax reform be finally approved? Year in, year out, we still don’t have an answer to this matter.
In 2021, the tax reform bill, proposed by the economic team of the government, was approve by the Chamber of Deputies but got stucked in the Senate. The expectation is that the bill will be approved this year. Will indeed?
The bill brings some controversial changes to the current tax laws, such as taxation of dividends at the rate of 15%, taxation of past profits if distributed after the bill is enacted, termination of interest payments on equity, prohibition of cost increase for individual shareholders for capital increases with profit reserves, taxation on income from closed-end funds, among others.
There are, however, some proposed changes that could bring significant financial benefits to taxpayers, such as reduced tax rates on income from closed-end funds, offshore investments and real estate transactions, among others.
But (there is always a “but”), taxpayers desire a new tax law that would encompass all taxes, better aligning the tax cost and simplifying the tax system. Implementing this partial reform focused only on income tax raises the fear that it will only increase the tax burden without delivering the necessary reductions and simplifications long waited by taxpayers.
The 2021-year review shows that the quest for more revenue for government’s budget put pressure on passing a partial (income) tax reform. But, this pressure was temporarily released with the recent enactment of the new rules of the precatórios (judicial payment orders arising from debts owed by the states, municipalities, federal treasury and other governmental entities in Brazil).
Some say that the search by the government for more revenue will continue in 2022. And, consequently, the tax reform may once again be in the spotlight. 2022 will be a presidential election year, and this can bring uncertainties whether a full or partial tax reform will be approved. The precedents show that election years are usually low years for passing bills. On the other hand, if the tax reform is the only alternative for increasing government´s revenue, we may be surprised. We will keep following up with this. To be continued….
