“One for you/nineteen for me…“, says the lyrics of “Taxman”, by the Beatles. The character in the song, composed by George Harrison in 1966, is a tax collector. “One for you, nineteen for me,” he determines.
It is a reference to tax on great fortunes that was in force in the United Kingdom at the time – 95% of profits that exceeded a certain level went to the government. And George, a 23-year-old new millionaire, was not happy. So much so that his character also says, with the air of a Shakespearean villain: “If the 5% that remains seems little to you; be thankful I didn’t take everything.”
Now the government here is planning something that could inspire similar protest songs, even if it doesn’t plan something quite so draconian. We are talking about “minimum tax” for those who earn from R$1 million per year.
The question: based on the 2022 IR data, the most recent available, 307 mil Brazilians declared a gain of more than R$1 million in the year. Most of these people have tax-exempt sources of income – such as dividends e real estate fund shares.
So far, normal. The problem for the government is that part of this club is completely exempt. Of these 307 thousand, 115 thousand took out R$1 million or more just with company dividends – without paying tax on these gains.
If you are the happy owner of 0.064% of WEG shares, for example, you received R$1 million in dividends from the electric motor manufacturer; and did not pay a single real of tax – there was another R$554 million in interest on equity (JCP); But then it doesn’t count, since this is a taxable income.
5.3 million Brazilians declared the receipt of dividends in the 2022 IR – according to a survey by economist Sérgio Gobetti, researcher at Ipea and former secretary of Fiscal Policy at the Ministry of Finance. This is the most recent database. In total, these people reported receiving R$859 billion in earnings. Almost half the cake, R$ 403 would became from the select group of 115 thousand – those who received more than R$1 million in dividends alone.
READ MORE: Brazil is one of the only countries that does not tax dividends. There is room to start
A 15% tax (equal to “capital gains”) just on this R$403 billion that was exempt would already amount to R$60 billion. It would be more than enough to fund the income tax exemption for those earning up to R$5,000 – a proposal that Lula is discussing in parallel, and which would take up to R$45 billion from public coffers. Hence the government’s big eye on dividend earnings.
Of course, large shareholders of mega companies account for a considerable part of these 115 thousand people. But the biggest source of dividends in the country, mind you, are not big companies. Medium-sized companies, with revenues of up to R$78 million per year, account for the largest share: R$350 billion in IR 2022. And they are not on the stock exchange.
Those that are, and their large peers with private capital, were responsible for R$257 billion in dividends (plus an extra R$29.7 billion in JCP, for the record). It’s only 30% of the total.
The small ones, with revenue of up to R$4.8 million, generated an amount in dividends almost as significant as the B3 titans: R$222.5 billion. See here the slices that made up the R$859 billion pie:
Here it is worth a pause. For most people, the word “dividend” only refers to payments paid by publicly traded companies to shareholders. But that’s not all. The term also applies to the income of anyone who works as a PJ, instead of a CLT.
Anyone who works as a CNPJ practically only pays taxes on the legal entity. And with the well-known tax advantages. On a CLT salary, all earnings above R$4,600 are taxed at 27.5%. On top of a “PJ salary”, the common thing is that it barely exceeds 10%.
Small, medium and large companies live under different taxation regimes. Those that earn more than R$78 million per year pay 34% of the profit. This is a high tariff compared to other countries – the average across the 38 OECD members is 23.6%.
Almost every country in the world taxes dividends. And with strength: 25% on average for OECD countries. Brazil’s round 0% is a glaring exception.
Those who defend the continuity of the exemption, in any case, evoke our tax outside the curve in legal entities. Placing another tax on physics, for this argument, would constitute abusive double taxation. In this other InvestNews reportwe dive into the discussion, with more data.
Because the central issue here is different: the fact that 68% of dividends came from small and medium-sized companies, which already have significant discounts in taxation.
Medium-sized companies, those with revenue up to R$78 millionfall under the “presumed profit” regime (more friendly than the “real profit” regime of the big ones). Under these rules taxation can be below 20%. In other words: there would be a reasonable scope for taxing the dividends that partners receive as individuals. Even more so if this taxation is restricted to those who earn more than R$1 million per year.
The same goes for small ones, those that make money up to R$4.8 million. The taxation regime there is that of Simple National – which can be less than 10%, depending on the case.
However, even in this range there are those who make more than a million in clean profits. In IR 2022, there were 15 thousand people – 5% of the total. This includes self-employed professionals and employees who occupy senior positions in companies and are paid as a legal entity.
“It’s difficult to find anyone in this group who has commerce or industry. The remaining profit is not enough. But there are a lot of people in the services”, says Sérgio Gobetti. “The lawyer, the doctor, the PJ… They swim in stride. The cost may be rent, a secretary, but almost all revenue becomes profit.”
The tendency, then, is for the Lion to advance on this audience. But it is recommended that you do not go to the pot too thirsty. In the United Kingdom, taxes on large fortunes have created distortions. Much of the top of the pyramid changed their tax domicile – and the practice of taking 95% (sometimes more) of the income no longer exists.
The heaviest taxes there include inheritance tax, at 40%. George Harrison, scalded, saved his family from this. He died in 2001, leaving his £99 million fortune in the care of a trust – an investment company, designed to transfer money to his heirs whenever they needed it. With this device, inheritance tax does not apply. George 1 X 0 Taxman.
