The change in tax collection on so-called exclusive funds will affect about 2,500 super-rich Brazilians, according to the federal government, that is, 0.001% of the national population. The revenue expected from the measure, however, can generate enough cash to finance about a third of the “Minha Casa Minha Vida” program.
According to the government, the taxation of exclusive funds could generate 24 billion reais (approx. 4.9 billion USD) for the Union between 2023 and 2026. Next year, the collection could exceed 13 billion reais ( approx. 2.6 billion USD). This year, as well as in 2025 and 2026, it would reach 4 billion reais (approx. 823 million USD) per period.
The “Minha Casa Minha Vida” program, relaunched by President Luiz Inácio Lula da Silva, has 10.5 billion reais (approx. 2.16 billion USD) in the 2023 national budget. By 2026, the program wants build 2 million homes.
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The taxation of exclusive funds was defined in a provisional measure signed by President Luiz Inácio Lula da Silva on Monday the 28th. According to Alexandre Tortato, lawyer and master in Tax Law, the measure equates the taxation of the funds of the super-rich to that of common investment funds, available to citizens in banks and securities agencies.
Mutual fund investors pay between 15% and 20% in taxes on their earnings from investments twice a year in the so-called “installment-eating” automatic taxation system. Investors in exclusive funds, in turn, only paid taxes when they redeemed their investments. This is how it worked until the edition of the MP.
“What we are doing now is equalizing the taxation of these two models, which seems correct and fair to me,” Tortato summarized. “Because the taxation of someone who has 10 thousand reais in an open, common fund, shouldn’t be the same as that of someone who has 30 million reais in an exclusive fund?” He inquires.
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According to the government, the exclusive funds have combined assets of 756.8 billion reais (approx. 155.7 billion USD), which is equivalent to 12.3% of all investments in Brazil. To access an exclusive fund, an investor must have at least 10 million reais (approx. 2 million USD) available to invest. It is also necessary to be willing to pay up to 150,000 reais (approx. 31,000 USD) per year in administration fees.
“They are family or individual funds and that is why they are exclusive. Specialists in the financial area say that their average balance is 20 million or 30 million reais, even to generate a balance that covers the expenses of the regulatory bodies,” Tortato added.
offshore
Lula also signed a bill on Monday to tax the returns of Brazilians obtained from investments outside the country through offshore companies, generally opened in tax havens. Tortato reinforced that, in this case, they also sought to adapt taxation.
Offshore owners already had to pay taxes on the returns from their overseas investments when they repatriated their assets. Now they will have to collect taxes on the profits.
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The lawyer pointed out that investment in offshore companies is legal in Brazil, as long as it is declared before the tax administration body, Receita Federal. In 2021, for example, more than 800,000 Brazilians had offshore or foreign accounts declared to the Federal Revenue. Among them were the former Minister of Economy, Paulo Guedes, and the current president of the Central Bank, Roberto Campos Neto.
Guedes, by the way, was called to the National Congress to explain the investments he had in the British Virgin Islands, a tax haven. At that time, he claimed that he had an offshore company since 2014 to avoid taxes.
According to the government, more than 1 trillion reais (approx. 205.7 billion USD) invested abroad belong to Brazilians. The collection of taxes on the yield of that security can generate 7 billion reais (approx. 1.4 billion USD) per year. The value is almost equal to the amount of transfers that the government makes to the private sector to stimulate sectors of the economy.
Taxation varies from 0% to 22.5%, depending on foreign earnings.
Lula speaks
This Tuesday the 29th, President Lula affirmed that the changes in tax collection are commitments made in his electoral campaign and aim at the general well-being of the Brazilian population. “It is important that people understand that the welfare state, which exists in Europe, in other countries, is made because there is an equitable, fairer contribution from the payment of income tax. The same does not happen to us in “Brazil, where the poorest pay more, if we compare proportionally, the poorest pay more income tax than the owner of the bank,” he said.
“We made a bill to tax the richest people and those who have offshore, especially abroad. That is, these people earn a lot of money and do not pay any income tax,” said the president, broadcast live by social networks.
Both the Provisional Measure on exclusive funds and the bill on offshores must be approved by the National Congress for them to become law. The taxation of offshores, by the way, had already been sent in the form of a PM, but it lost its validity. Now it returns in the form of a bill.
Lula said he hopes that parliamentarians, this time, “instead of protecting the richest, will protect the poorest.”
Let’s put the rich on the income tax and the poor on the budget. That’s what we did yesterday, by sanctioning the minimum wage appreciation law and proposing the Provisional Measure to tax the super-rich. Proportionally, the poorest pay more in income tax than the owner of the…
— Lula (@LulaOficial) August 29, 2023
Editing: Rodrigo Chagas and Nadini Lopes
