Income tax reform: who wins and who loses with the new rules?

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Instituto de Economia da Unicamp

Published on Premiered Dec 9, 2024
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The recent debate held by the Institute of Economics analyzed the impacts of the fiscal package presented by the Ministry of Finance. Focused on the mini-reform of Income Tax, the event brought together Marco Antônio Rocha, Luiza Nassif and Ricardo Gonçalves, who discussed the proposed adjustments and their economic and social consequences. Marco Antônio Rocha began by detailing the central measures of the package, such as the expansion of the exemption range for incomes of up to R$5,000 and adjustments to the higher rates. He also pointed out other relevant changes, including changes to the Continuous Benefit Payment (BPC), Bolsa Família and the Armed Forces pension, in addition to adjustments to Fundeb. The main objective is to adapt these policies to the new fiscal framework, with potential implications for various sectors of society. Luiza Nassif addressed the redistributive effects of the expansion of the exemption range, highlighting that the measure benefits income segments that are already above the national average. She emphasized that the Brazilian tax structure, based largely on indirect taxes, tends to be regressive, penalizing the poorest classes. Nassif suggested that, in order to achieve greater progressiveness, it would be necessary to include taxation on profits and dividends, which are currently exempt, and create new higher tax brackets to capture higher incomes. Ricardo Gonçalves presented international comparative data, showing that countries such as Germany and the United States have higher maximum tax rates than Brazil. He highlighted the need to reformulate the progressive tax scale and broaden the tax base, incorporating all sources of income. Gonçalves also drew attention to the political challenges, considering the resistance of influential groups and the need to coordinate with a conservative Congress. The participants highlighted the risks involved in processing the reform. The possibility of only partial approval of the measures, such as expanding the exemption without increasing tax rates at the top of the pyramid, was pointed out as problematic, and could result in a loss of revenue without reducing structural inequalities. The studies presented indicated that, while the extension of the exemption generates a regressive impact, the increase in the rates for the wealthiest could neutralize these losses and even increase revenue. The discussion highlighted that, although the package represents progress in terms of fiscal adjustments, it still faces limitations in promoting an effective redistribution of income. The adoption of a more progressive system, with less dependence on indirect taxes, was pointed out as essential to reduce inequalities and guarantee the financing of public policies. The full analyses are available on the Transforma and MADE websites, offering support for critical monitoring of this process.

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