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The Ministry of Finance reevaluated the estimated tax consequences of exempting the IRPF for individuals earning up to R $ 5 thousand. Initially projected at R$35 billion, the updated calculation now suggests a reduction to R$25 billion, as reported by sources from the newspaper Folha de S.Paulo.
The government’s economic team aimed to lessen the effect of the policy while still honoring President Luiz Inacio Lula da Silva’s campaign pledge. Consequently, the calculations were revised following an internal team adjustment.
The government’s intention is to uphold the idea of implementing a 10% minimum tax for individuals earning over R $ 50,000 per month, encompassing profits and dividends, to offset the revenue loss from the income tax exemption.
The wealthiest taxpayers often pay significantly less than the highest IRPF rate of 27.5%, sometimes even less than 10%, as stated by the government.
How ought the government’s compensation system operate?
The newspaper’s report states that the compensation model proposed by Finance Minister Fernando Haddad a month ago involves holding back the dividend tax at its source and adjusting it based on the distributing company’s actual tax rate.
If the company has a low tax burden, keeping some dividends will serve as an early payment of the taxes owed.
The shareholder may receive a refund for any excess amount paid in the annual statement, or they may need to make an additional payment if the retention is insufficient.
The government’s economic team clarified that dividends paid to foreign shareholders will be subject to retention at the source, with no exceptions, as reported by the newspaper.
The government also argues that the measure will indirectly tax certain incomes currently not taxed, thus lessening the inequality in taxation among various taxpayer groups.
In the initial proposal, the government contemplated introducing a new tax compensation measure: limiting the exemption for individuals with serious illnesses to those earning up to R $ 20,000 per month. Nonetheless, this concept was ultimately rejected by the team.
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