The Super-Rich Enjoy More Exemptions and pay Less Taxes in Brazil

By Richard Mann

RIO DE JANEIRO, BRAZIL – The richest Brazilians enjoy greater exemptions and pay proportionally less Income Tax (IR) than the less wealthy and those positioned in intermediate income bands. This is what the “IR Pyramid” shows, a calculator prepared by G1 based on data provided annually by the Federal Treasury Department on the detailing of IR statements.

The data refer to a total of 29.1 million individual income taxpayers last year and are included in the report “Large Figures of Individual Income Tax Returns — the Calendar Year 2017”, recently released by the Federal Treasury.

The Federal Treasury divides the base of income tax claimants into 17 income bands. The five top bands, with incomes above 60 minimum wages, gathered 320,000 Brazilians last year, or 1.1 percent of the total. This elite accounted for 22 percent of all income declared to the tax authorities.

The five bands at the base of the pyramid, with a monthly income of up to five minimum wages, gathered 15.9 million Brazilians, or 54.8 percent of the total number of taxpayers, who together received a lower value: 17.3 percent of the total declared earnings.

In the highest band, with monthly income above 320 minimum wages per month (more than R$299,800 (US$75,000) in 2017 amounts), there are only 25,177 “super-rich”.

The figures in the “IR Pyramid” show not only a high concentration of income but also a concentration of exemptions among the richest. The reason for this is that the progressive IR table (of up to 27.5 percent tax) only applies to the so-called taxable income.

In the last band at the top, the percentage of exempt and untaxed income on total income, such as profits, dividends, income from owners of micro-companies, donations, and inheritance, has reached 70 percent. In the intermediate bands, this percentage does not reach 30 percent.

For economist and sociologist Marcelo Medeiros, a researcher at the University of Brasília (UnB) and the Brazil Lab at Princeton University, the current income tax model contributes to increasing inequality in the country.

“We know that there is far more inequality than just work-related inequality. The concentration of capital income is very high and contributes to increasing inequality further. The tax system does not help revert this, as it is much more bountiful with capital taxation than with labor,” says Medeiros.

Experts also draw attention to the different approach to taxpayers with the same level of income, since business or professional owners who act as legal persons usually pay less income tax than wage earners.

The discussion on the review of income tax and the Brazilian tax system has progressed little in recent years. The current proposal provides for the replacement of five taxes by only one, to simplify and increase the transparency of tax collection. But it does not address the review of exemptions or the tax burden on consumer spending or income and wealth.