In Brasilia on February 17, the executive secretary of Brazil's finance ministry, Dario Durigan, announced that the government's upcoming income tax reform aims to tax shareholders receiving dividends from companies with significantly lower tax rates than the national average. The objective, as Durigan explained at an event organized by the American Chamber of Commerce, is to maintain fiscal neutrality while shifting the tax burden more equitably.
Durigan addressed concerns over the potential loss of the current tax-exempt status for corporate dividends, a feature that has historically helped balance the tax load for businesses in Latin America's largest economy. He clarified that the reform targets "shareholders receiving dividends from companies that are currently taxed well below the Brazilian average," without specifying the exact criteria for this classification.
The reform's core proposal, revealed late last year, will raise the tax-exempt income threshold for Brazilians to 5,000 reais ($875.84) per month, benefitting an additional 10 million taxpayers and aiming to bolster President Luiz Inacio Lula da Silva's popularity following a recent dip in approval ratings.
Market skepticism remains due to the anticipated revenue shortfall and the challenge of achieving fiscal balance. Durigan highlighted that the reform includes implementing a minimum tax of up to 10% for the wealthiest individuals, affecting approximately 160,000 taxpayers.
Moreover, compensatory measures to counterbalance revenue losses include ending income tax exemptions for high-income retirees with severe illnesses or disability who earn over 20,000 reais a month, among other undisclosed strategies.
(Exchange rate: $1 = 5.7115 reais)