Brazil’s Economy Minister vows to reduce corporate income tax with increased collection

RIO DE JANEIRO, BRAZIL – The Minister says that corporate income tax will drop 5 percentage points, and that Bolsonaro’s reelection will increase this reduction.

Economy Minister Paulo Guedes said at a meeting with São Paulo industrialists on Wednesday, June 23, that the increase in tax collection and revenue expected this year will be immediately converted into tax cuts for both individuals and corporations.

Guedes said that the economy has resumed vigorous growth and revenue is expected to increase by 5% to 6%. “If revenue increases, we will immediately reduce taxes,” the Minister pledged.

Guedes said that corporate income tax will be cut by 5 percentage points in two stages, with a 2.5 point drop per year. Should Bolsonaro be re-elected, there will be another round of 2.5-point cuts.

“We think that corporate tax has to be a maximum of 25%. We are going to tax the individual more, the wealthier individual. By increasing the rate of growth we will create a more robust middle class,” he said.

With respect to Income Tax for Individuals, the Minister said that the proposal is to broaden the bracket for exemption.

“Someone earning R$1,900 (US$383), R$2,000, R$2,100, or R$2,300 must be exempt. We will get 8 million Brazilians and suddenly almost double this exemption range for the most vulnerable, because we are taxing those at the top,” the Minister declared, mentioning the proposal to tax dividends, currently being developed by the economic team.

According to the Minister, a “structural growth rate” will probably be calculated at 3.5% to be used for tax exemptions, should tax collection grow by 5% to 6%. The Minister cited other taxes, such as that on industrialized products (IPI), as examples of distortions. He said that the tax on industrialized products (IPI) “has to end.”

In addition to tax exemptions, the Minister said that the government is studying ways to reduce tax debts with the Treasury, mainly for micro and small businesses. It would be a much less bureaucratic program than the Refis (the refinancing program for past due tax debts). The goal is to grant a discount on refinancing debts, according to the taxpayer’s size.

“We are studying a very constructive program legally. If it is a big company, the discount is lower. If the company is small, there is an 80% discount on debt,” he said.

Guedes mentioned the water crisis and food as factors that contributed to this year’s high inflation. He pointed out that in the first case, tariff rate increases are applied that raise the cost of energy, but also prevent rationing in the country.

“Our inflation took a leap, reaching 8% in 12 months, precisely because of food and energy. Energy, because now we are seeing new rates to prevent rationing in the future, there is a rationalization in the use now, and this is a shock. There will be an energy shock and a food shock,” he said.

He pointed out that he expects the Federal Supreme Court (STF) to ratify Congress’ decision to guarantee the Central Bank’s autonomy. Without providing details, he said that an independent Central Bank would prevent transitory and sectoral increases from becoming permanent. “The Central Bank is working to avert this permanent hike,” he said.