Bolsonaro’s government begin term locking horns over raising financial transactions tax rate. Here’s what tributes, taxes and contributions the president will be able to alter without needing approval from the members of parliament
One of president Jair Bolsonaro’s (PSL) campaign promises was to lower taxes imposed on Brazilians. The economic plan, commandeered by superminister Paulo Guedes, always mentioned the simplification of the tax system and the reduction of the tax burden. This is why the announcement, made by the president himself, that the government would begin his administration raising the IOF (tax over financial transactions) rate caused amazement. The statement was later classified as a “mistake” by Bolsonaro, but the “locking of horns” between members of the economic and political teams of his administration became evident. However, if he really wanted, what taxes, levies and contributions could the government change without depending on Congress?
Raising taxes is a quick way for the government to heal some of its cash-flow problems. In the current scenario of tax crisis faced by Brazil, any extra money is more than welcome. When it comes to increasing taxes over financial transactions, Bolsonaro mentioned that there would be an increase in rates for personal credit. That increase could serve as a compensation for the revenue loss the government will suffer after the president sanction the extension of tax advantages for companies set up in the North and Northeastern regions, within the scope of SUDAM and SUDENE.
IOF is one of four taxes which may be increased or reduced via a presidential decree, without depending on the approval of deputies and senators. Other taxes which fit this category are IPI (tax over industrialized products), import taxes and export taxes. Another possibility would be for the government to change Cide Combustíveis – a tax which falls upon the price of fuel, and ensures a minimum amount of investments on transportation infrastructure and projects related to the oil and gas industry, for instance.
Why can he?
Tax expert Geraldo Mascarenhas L.C. Diniz, a partner at Chenut Oliveira Santiago Advogados and a former advisor at CARF (Fiscal Resources Administrative Council) explains such taxes are classified as extrafiscal, because they don’t have an exclusively collecting purpose, but also have the role of regulating specific sectors. “These are taxes which are notoriously extrafiscal, that may be altered by a decree. The president doesn’t need a provisional decree or anything, in order to increase or reduce the rate or change the tax base,” he explains.
This is backed by the Constitution, as remembers tax attorney Igor Mauler, founding-partner at Mauler Advogados. “There is the law, and the Constitution authorizes the law to establish a floor and a ceiling [for the tax]. And, within that scope, the government may manipulate the rate for more or for less,” he says.
The IOF, mentioned by Bolsonaro, is the most flexible tax for rate changes, in the opinion of Ana Claudia Utumi, a tax attorney at Utumi Advogados. She explains that this bigger flexibility is due to the existence of “four” IOFs. This sort of tax may fall upon credit operations (which include personal credit, mentioned by Bolsonaro, exchange, interest, and real estate titles and values.
Each of these IOFs has its own tax rate. Ana Claudia remembers that, nowadays, the highest rate involves exchange operations: 6.38 percent on operations paid when the credit card is used for shopping abroad, for instance. But the rate may reach even 25 percent, and it is up to the president to establish the percentage. When it comes to credit, Bolsonaro’s choice for an alteration, the highest IOF amount is for personal credit, currently at 3.38 percent. Through a decree, he could increase that tax up to the legal limit of 1.5 percent per day.
“These are very flexible taxes. IOFs have more flexibility for months. Import and export taxes are changes for regulatory purposes, to regulate the entry and exit of products in and from Brazil, and would hardly be altered at this point,” according to Ana Claudia. Regarding the IPI, the attorney remembers the global economic crisis period of 2008, when Brazil chose to cut all taxes on cars and white goods. “The alteration on IPI is not so much due to tax-collecting purposes. Sometimes it’s altered for that purpose, but, in others, to encourage or discourage production of such items,” she analyzes.
What about PIS/Cofins?
Who can forget when then-president Michel Temer (MDB), in 2017, increased PIS/Cofins tax rates on diesel, gasoline and ethanol? At the time, the government expected to obtain more than R$ 15 billion on that year – the increase in refineries reached up to R$ 0.41 per gas liter. The measure was taken because the government needed more money, and believed that was the quickest way to obtain such a compensation. Temer’s decree originated a legal dispute: a preliminary decision even suspended the tax rate increase, but the government was able to dismiss it in the courts and kept the increase.
According to the understanding of tax attorneys Geraldo Mascarenhas L.C. Diniz and Igor Mauler, PIS/COfins could not be handled in such a way, and the discussion is currently in the Federal Superior Court (STF). Besides falling upon fuel prices, PIS/Cofins can also be collected on financial revenues. In that case, companies have also questioned tax rate changes.
Mauler explains that the law which implemented such taxes says that the president may handle tax rates as he pleases. There aren’t, however, any provisions in the Constitution expressively allowing that. “If the president wants to do it, he is authorized by law, even though the Constitution doesn’t mention anything. And that will generate a legal war, because the prerogative to legislate on taxes belongs to the Congress,” he explains. In other words: the president may even change these rates, but he is not bound or certain to do it.
Tax changes happen in every government
Changing taxes is not exclusive to Bolsonaro’s government. Several other presidents have done the same on different occasions. “All governments have tax collection problems. When they exonerate on one hand, they try to compensate on another, unfortunately increasing more than the exoneration itself on some occasions. It’s nothing new, because it has happened in every government,” points out João Elói Olenike, president of the Brazilian Institute of Planning and Taxation (IBPT).
He remembers that Fernando Henrique Cardoso (PSDB) wanted to increase the maximum individual income tax from 27.5 percent to 35 percent – the bill went to Congress, but eventually was rejected, and the rate is still the same to this day.
Luiz Inácio Lula da Silva’s (PT) government had the good moment of the economy on its side. But, at the time, the CPMF – the infamous “check tax” – was in effect. “Lula kept, or tried to keep CPMF, a tax over financial transactions which gave the government a reasonable revenue. It was only struck down in December 2007 after a Congress vote,” says Olenike.
During the second term of Dilma Rousseff (PT), before she was impeached, she had changed taxes for ten different times: she raised the IOF of individual taxpayers, the Cide Combustível, raised IPI taxes over wines, and collected taxes over payrolls which her own government had exempted from taxes, just to name a few examples. Michel Temer (MDB) also changed the IOF rate – but, in that case, for people who send money abroad to accounts registered under their own names.
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Governo Bolsonaro começa gestão batendo a cabeça sobre elevação da alíquota do IOF. Saiba em quais tributos, taxas e contribuições o presidente pode mexer sem precisar de aprovação dos parlamentares