BRASILIA (Reuters) – The executive secretary of Brazil’s finance ministry, Dario Durigan, said on Monday that an income tax reform that will be proposed by the government aims to tax shareholders who receive dividends from companies with taxation “well below” the average.
Speaking at an event hosted by the American Chamber of Commerce, he noted that the goal of the reform, which has yet to be sent to Congress, is to remain fiscally neutral for public finances.
Durigan also addressed concerns that the new system could erode the current income-tax-free status of corporate dividends, a feature seen by many as compensating for the high tax burden companies face in Latin America’s largest economy.
He explained that the government’s approach targets “shareholders receiving dividends from companies that are currently taxed well below the Brazilian average,” without clarifying how this distinction would be applied.
The centerpiece of the reform, which was unveiled late last year sparking market turmoil, will exempt Brazilians earning up to 5,000 reais ($875.84) per month from income tax, up from the current threshold of two minimum wages, or 2,824 reais.
This will free an additional 10 million Brazilians from income tax, raising the total to 26 million. The move is seen as a crucial strategy by President Luiz Inacio Lula da Silva to regain popularity after a significant decline in recent polls.
However, it is met with skepticism by markets due to the substantial revenue loss and the government’s challenge to maintain fiscal neutrality.
Durigan emphasized that the reform’s counterpart will be the introduction of a minimum tax for the wealthiest, with an effective rate capped at 10%, impacting around 160,000 taxpayers.
Last year, the government had already acknowledged that this move alone would be insufficient to offset the revenue loss, stating that it would also end the income tax exemption for retirees with severe illnesses or those who suffered accidents and earn above 20,000 reais per month, “among other measures,” which were never disclosed.
($1 = 5.7115 reais)
(Reporting by Marcela Ayres; Editing by Chizu Nomiyama)
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